Oil markets are being weighed down by a level of pessimism that is increasingly disconnected from underlying fundamentals. The absence of dramatic price spikes amid Middle East tensions has encouraged the view that geopolitical risk no longer matters. That conclusion is premature.
The structure of the oil market has changed, largely because of U.S. supply growth, which has muted the immediate price response to conflict risk. But muted is not the same as irrelevant. Policymakers remain highly sensitive to fuel prices, and there is a clear effort to avoid actions that would directly target energy infrastructure or trigger a sharp oil shock. That restraint explains today’s price behavior, not an absence of risk.
Crucially, oil demand is not collapsing. Growth may be modest, but it remains positive and has repeatedly surprised to the upside. The dominant narrative of an imminent, overwhelming surplus looks overstated, particularly when persistent supply risks, including Iran, are taken seriously.
At the same time, enthusiasm in other parts of the commodity complex has run ahead of reality. Metals benefited from optimism around technology, infrastructure, and artificial intelligence, but those trades now show signs of excess and correction. Oil, by contrast, has been left behind, discounted more by sentiment than by data.
As confidence in financial markets, government debt, and currencies wavers, investors are rotating toward physical assets. Oil belongs in that category. It may not outperform copper or gold, but it is mispriced relative to its fundamentals, and that gap will not persist indefinitely.