Chart of the Week: Oil prices yo-yo on news from the Middle East  

As of Friday morning (April 17), the U.S. and Iran were negotiating a three-page plan to end the conflict. As a result, the West Texas Intermediate (WTI) oil price benchmark went from about US$95 per barrel on Thursday April 16 to around US$83 as of mid-morning on Friday.

Large price swings have been common since the conflict started at the end of February with the big question remaining where they will land over the longer term.

Before the conflict erupted, the general consensus was that oil prices would be relatively soft this year due to abundant supply. Our forecast from December was for WTI to average US$65 per barrel.

Early in the conflict, we adjusted this up to US$75 per barrel on the assumption that both the war and the physical disruption of the flow of oil would be short-lived. That was mid-March with the war dragging on another month since. As a result, US$75 is likely too low even if the peace talks are successful and the war officially ends in the next few days.

An end to the conflict would reduce the risk premium (though traders are likely to remain at least somewhat concerned that hostilities could flare up again), but it will take time for the physical movement of oil to normalize with the price staying higher than the pre-war estimates for weeks and perhaps months to come.