Many oil analysts have targeted a shaky final nine months for 2025 and longer, but Goldman Sachs in a report sent to clients Wednesday suggested that futures and options markets are largely “apathetic” and discounted the potential for some of the highest volatility in recent years.

The bank said that oil market risks have increased appreciably since Inauguration Day thanks to plenty of uncertainty for supply and demand. It further noted a marked contrast between the current implied volatility and what the bank’s internal models might suggest.

“The market pricing of risk is relatively low — especially to the upside — in our view,” the report observed. Goldman believes that increased downward pressure on sanctioned supply leaves those risks skewed to the upside in the short term, with a transfer of risk to the downside next year.  A few near-term scenarios such as a potential 1-million-b/d declines for Iran and Russia have the capability of pushing near-term Brent prices above $85/bbl, a chart in the report indicated.

Veteran futures experts agree. Elaine Levin, president of energy hedging company Powerhouse, told OPIS that markets are currently pricing options at very cheap levels. Thanks to offsetting news for supply and demand, the risk premiums attached to calls and puts is much lower than normal. She singled out winter 2025-2026 strips for ULSD contracts at an enticingly low premium given how much time stands between now and then.

“Volatility is on sale,” she told OPIS, but warned that “volatility is like a coil” with the potential for a wild spring higher once the ongoing compression wears off. The essence of risk management calls for appreciating when options are attractively priced, and Levin sees opportunity in early spring.

Goldman Sachs didn’t offer any new trading recommendations for oil and maintained its revised view for a $65-$80/bbl trading range this year for Brent. But the bank clearly indicated that volatility is “mispriced” and
suggested that macro hedges to the upside for oil appear very attractive. One can look at the S&P 500 as a possible analogue for the volatility of risk assets. S&P 500 volatility recently hit its highest implied volatility in over
six months thanks to geopolitical risk.

Based on modeling, the investment house believes oil should have an implied volatility of about 40%, but the actual performance has been about half that
level recently.

–Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Michael Kelly,
mkelly@opisnet.com