The geopolitical risk premium on the oil market is falling slightly, Goldman Sachs says, per Reuters

(Reuters) – Oil market gauges of goopolitical risk premia fell slightly this week, following sharp increases last week in both implied Brent volatility and implied volatility call options, Goldman Sachs said.

Oil prices steadied in Asian trade as traders weighed developments in the Middle East conflict against continued lower expectations for demand.

Futures last traded at $77.72 a barrel, up 0.7 percent, as of 0612 GMT.

Prices had fallen more than 4 percent in the previous session on a possible Hezbollah-Israel ceasefire. (OR)

Goldman Sachs still expects a peak of $10-20 a barrel for Brent in the event of Iranian production disruptions, as the evolution of the conflict remains uncertain.

However, in the absence of major disruptions, prices could stabilize around current levels this quarter, the bank said in a note dated Tuesday.

Call options implied volatility declined to mid-April levels last week, while implied Brent volatility rose above model-implied fair value for the first time this year, Goldman said.

“Options markets are pricing in a roughly 5% probability of a $20/bbl price increase, which we estimate roughly corresponds to a 2 million bpd outage over 6 months without an OPEC offset, which will was taking place next month,” the bank said. in a note last week.

The market uses implied volatility to estimate the likelihood of future changes in a security’s price.