ING thinks overly optimistic traders are making the market vulnerable to "significant" upside risk: File Image/Pixabay

Following a tanker in the Strait of Hormuz as well as Kuwait and Bahrain attacked by Iranian drones plus a counterattack by the U.S., oil prices on Monday moved upwards, but at a relatively low rate - indicating that investor confidence in the U.S./Iran ultimately developing a peace agreement was dented but not ruined.

Brent rose about 2 percent to nearly $74 per barrel, and West Texas Intermediate rose by the same rate to about $70.50 per barrel – still near prewar levels.

Panic trading was said to have been avoided when the U.S. and Iran agreed to allow commercial vessels to transit the strategic waterway while scheduling a continuation of talks on their memorandum of understanding for Tuesday.

ING’s Warren Patterson and Ewa Manthey in a research note published Monday were baffled by the optimism of market participants, and said of the most recent hostilities in the Middle East, “participants appear to be shrugging off these developments, instead focusing on what a continued recovery in oil flows would mean for the global balance.

“This complacency is odd and clearly leaves significant upside risk if the supply recovery proves slow – or if we see significant re-escalation; while the oil market is technically in oversold territory, momentum appears to still be to the downside.”

In a similar vein, Philip Petursson, chief investment strategist at IG Wealth Management, said the market appeared to be driven by sentiment, “but where that sentiment is coming from is the real challenge.”

He added, “You hope that the peace deal holds, but we don’t know until there’s an actual deal and even then you don’t know how long that can last.”

Despite the weekend’s tensions, shipping data showed that Middle East producers continued to load oil and LNG for transit through the Hormuz; at the Saudi Arabia port of Ras Tanura, a fourth supertanker was loading crude on Monday, according to LSEG data.

Two other supertankers were waiting to load crude at United Arab Emirates ports, and the UAE and Qatar continued to send carriers through the Hormuz reportedly in dark mode.