Brent crude is trading roughly $20 above its fair value estimate, and this gap has a distinctly geopolitical nature. JPMorgan's analytical model puts the fair value of a barrel at $94 while market quotes stand near $114 — in other words, almost a fifth of the current price does not reflect the fundamental balance of supply and demand but is a war-risk premium tied to the Strait of Hormuz.
US Energy Secretary Chris Wright characterizes the spike as temporary, while Fitch Solutions (BMI) experts expect a sharp correction only after a preliminary agreement between Washington and Tehran on the strait emerges. In their assessment, a real deal is unlikely before early 2027. According to JPMorgan's calculations, oil delivered to Asia cost an average of $131 per barrel in October.
Where the war premium comes from
JPMorgan analysts found no evidence that the gap between the market and fair value is driven by transportation costs — therefore, geopolitical risks play the key role. Historically, periods when the premium exceeded 5% of fair value lasted an average of 3.8 months. However, the bank acknowledges that uncertainty could keep the price above that level for considerably longer.
BMI forecasts an average Brent price of $107 per barrel in the current quarter and $112 in the first quarter of 2027. A preliminary agreement, in the analysts' view, would trigger a large-scale sell-off: increased supply from OPEC and non-OPEC countries would crash Brent to an average of $67 in the fourth quarter of 2027.
Which risks keep the premium in place
Chris Wright attributes high prices to a global shortage of oil refining capacity. BMI warns that even after a deal, the refined products market will recover more slowly than crude quotes themselves. At the same time, the opposite threat persists: if the conflict escalates, the price could easily exceed the previous wartime highs.
Ole Hansen, head of commodity strategy at Saxo Bank, points to reports of possible US and Israeli strikes on Iran. Such events, in his assessment, could follow the November 3 midterm elections, and the political deadlock in Israel keeps the course of war unpredictable. JPMorgan estimates transportation costs for exports to Asia at $38 per barrel versus $13 for Europe — the reason being a shortage of tankers, which drives up shipping costs.
Cryptalist analysis: The structure of the Brent price now reflects not so much the physical balance as the cost of a geopolitical option — the market is pricing in the probability of escalation in the Strait of Hormuz with a substantial markup. For institutional investors, this means asymmetric risk: any signal of de-escalation could trigger a rapid correction of $20 or more, while further escalation leaves limited upside relative to the premiums already priced in. Cryptalist assesses the current level as a zone of elevated volatility requiring cautious risk management.