Oil prices have been gripped by volatility since the U.S.-Iran war began nearly four weeks ago.

But analysts say the market has now entered a state of “backwardation” that suggests a risk premium has been baked into energy prices, despite traders anticipating a swift resolution to the conflict.

As investors reacted to reports on Wednesday that the White House had sent Iran a 15-point peace plan intended to bring an end to the conflict, oil prices fell sharply.

But mixed messages from Washington and Tehran on the state of peace negotiations, ongoing missile strikes in the Middle East and the continued backlog of traffic in the Strait of Hormuz ensured prices remain elevated.

Front-month global benchmark Brent crude futures are still hovering around the $99-a-barrel mark, almost 36% higher than where they stood before the U.S. and Israel’s first strikes on Iran on Feb. 28.

Meanwhile, U.S. West Texas Intermediate futures for April delivery were last seen trading around $87.76 — roughly 30% higher than before the war began.

Across the futures curve, however, prices tell another story. The oil market is in backwardation: a phenomenon where futures contracts with immediate or near-term deliveries sell at a premium over later deliveries.

“That backwardation — lower prices in the future compared to now — is indicating that the market thinks this current uplift in the oil price is transitory,” Toni Meadows, head of investment at BRI Wealth Management, told CNBC on a video call. “So it’s an event, rather than something that stays with us. Otherwise, you’d be paying more for future deliveries because of scarcity of supply. So, yes, there’s an issue now due to the fighting, but the expectation is that there will be some resolution.” Meadows said it was difficult to judge whether this was a reasonable conclusion. “We don’t know the full story of what’s happening,” he told CNBC. “Trump is definitely looking for an off-ramp, he’s been doing that all week. But the Iranians said they aren’t talking [to the U.S.] — where does the truth lie? At the moment, I think markets are just playing it cautiously.” He noted European gas prices have not surged to the extent they did after Russia’s 2022 full-scale invasion of Ukraine, but said there was also still a backlog of traffic in the Strait of Hormuz — and markets may not be pricing in all the potential ways the situation could unfold. “At the moment, it can just be a price spike that abates if there is some sort of resolution, but it’s difficult to see what that path might be,” he said. “If it is short-lived, if they can find an off-ramp and capacity in the region hasn’t been destroyed, that’s one thing, [but] It’s a very fragile mix. One missile changes the equation. It’s not just about the negotiations. LNG plants, once they’re destroyed, it takes years getting that back online.”

He added that it would also be very difficult for the U.S. to achieve a total degradation of Iran’s nuclear ambitions by bombing the country.

“There’s still 400 kilograms of enriched uranium at 60% — it doesn’t take much to get that to 90%. The Iranians have got the technology and they could just force it underground,” Meadows said. “I’d say that markets are being relatively calm considering the potential range of outcomes.”

Katy Stoves, investment manager at Mattioli Woods, told CNBC the backwardation behavior playing out in the oil market “is quite normal with a shock like this.”

“I think people are expecting sort of a reduction in hostilities, which is what it’s signaling,” she said. “But equally, on the other side, potentially slightly more worrying, it could be [forecasting] a reduction in demand.”

Gas and airfares in the U.S. have already spiked in the almost four weeks since the U.S. and Israel launched their first strikes.

“Even if we do get a resolution, I think it’s very, very important to note that there’s been a lot of energy infrastructure destroyed during this, and even if we do get some sort of ceasefire … repairing those facilities, bringing those facilities back online is going to take time — and I’m not entirely sure the market is probably pricing that in,” Stoves said.

Risk premium

Indrani De, head of global investment research for FTSE Russell, told CNBC that even though market expectations were for lower prices in the longer term, volatility and risk were still being priced in.

“If you look at the oil futures curve, which is expectations about where [prices are] going to be, it’s very volatile. It keeps moving, but the shape of the curve is very consistent,” she said.

“It’s in deep backwardation with a sharp fall at about the four-months-out mark and at about 10 months out, meaning about the end of the year, it pretty much goes back to normal — with normal meaning... about $10 higher than before this conflict began.”

Brent futures for December delivery are currently priced at around $79.70. That’s a 17% decline from front-month prices, but a 10% premium on pre-Iran war prices.

“So the intense back position shows that even the worst-impacted market is pricing in an early resolution [to the conflict],” De told CNBC. “But if you see where the level ends 10 months from now, it still ends at about 10 to $12 higher prices for Brent per barrel than before the crisis. So I would say that’s kind of a risk premium that’s now built into the market.”