With the 60-day Iran MoU/nuclear agreement deadline expiring on Monday without resolution, RBC Capital Markets says headline-driven volatility, not fundamentals, is now driving oil prices.
The bank described a persistent downside bias in market sentiment, though it noted this pessimism may now be starting to fade.
RBC said large, well-timed trades and the constant rhythm of peace-and-conflict headlines have injected a bias to the downside.
The paper and financial markets have captured the mood of active traders more accurately than they have reflected broader market sentiment.
According to RBC Capital Markets, Iranian officials are demanding full implementation of the June deal, including the unfreezing of billions in frozen accounts and the lifting of US sanctions, before allowing more vessels to pass through the Strait of Hormuz.
RBC said US President Donald Trump would struggle to front-load such substantial economic concessions, given entrenched opposition from domestic and regional hardliners.
The investment-banking arm of Royal Bank of Canada (TSX:RY) report said Iran's Revolutionary Guard believes it has time on its side and can outlast Washington in the standoff.
Maritime attacks have continued, with at least five ships coming under fire in and around the Strait over the past week.
Most incidents involved vessels linked to Abu Dhabi National Oil Company, which has proved most proficient at the ship-to-ship transfers that enable Iranian barrels to reach export markets.
Crude prices have swung sharply, mirroring both the uncertainty on the water and the mood in trading rooms.
On Wednesday, the United Arab Emirates announced an indefinite embargo on all trade and financial transactions with Iran, following the interception of ballistic missiles aimed at the country.
The UAE had maintained diplomatic relations with Iran even during the height of the fighting in March and April this year.
RBC's outlook underscores how geopolitical uncertainty, rather than physical market conditions, continues to dictate the pace and direction of oil price swings.
