When Secretary of State Marco Rubio said on Tuesday, May 20, that there were "encouraging signs" in U.S.-Iran negotiations, oil prices fell more than 2% within hours. By Thursday, May 21, they had recovered more than 3% as Iranian hardliners complicated the diplomatic picture. On Friday morning, Brent was trading at $104.52, down again. For an investor watching an energy-heavy portfolio reprice twice in three days on diplomat-speak, the temptation to conclude that resolution is imminent, and to act on that conclusion, is not irrational. It is exactly what the research predicts.
There is a cognitive phenomenon in behavioural finance called the optimism bias. Neil Weinstein first documented it formally in 1980, identifying the systematic human tendency to assign lower probabilities to negative outcomes than the actual data supports. Weinstein showed this was not random error but a structured cognitive pattern: people consistently overestimate the likelihood of positive resolution and underestimate the probability that adverse conditions persist. In commodity markets, this bias becomes self-reinforcing in a specific way. The more loudly official sources signal progress, the more aggressively speculative traders discount the physical evidence building in the opposite direction.
The Physical Market Is Telling a Different Story
The physical crude market in May 2026 has delivered an unambiguous verdict that the paper market keeps ignoring. Before the blockade took effect in late February, the Strait of Hormuz carried between 20 and 20.3 million barrels per day of crude oil and petroleum products, roughly 20% of global oil trade. Approximately 10 million barrels per day of that supply remains trapped as of this writing. The EIA's May Short-Term Energy Outlook, released May 12, projects global inventories falling 8.5 million barrels per day through Q2 2026, keeping Brent prices around $106 per barrel through June. Strategic Petroleum Reserve drawdowns in the United States are at record levels: nearly 10 million barrels withdrawn in a single week in mid-May.
Yet each diplomatic rumour produces a price drop as if the strait were already open. The physical crude premium, which surged to more than $30 per barrel above Brent in early April 2026, has collapsed to near-parity as buyers step back. The market is not signalling that the crisis has eased. It is signalling that buyers, influenced by optimism bias, have temporarily stopped pricing the physical reality and started pricing the hoped-for diplomatic resolution.
Confirmation Bias Is Compounding the Problem for Canadian Investors
For clients who positioned into Canadian energy stocks during the early weeks of the crisis, a second cognitive bias has layered onto the optimism effect. The confirmation bias, extensively documented in the investment context by researchers including Barber and Odean in their 2008 work on trading behaviour, describes the tendency of investors to search for, interpret, and remember information that confirms their existing positions while discounting contradictory evidence.
A client who bought Suncor Energy at $87 or Canadian Natural Resources at $62 in March has a confirmation bias working against them now. Every Rubio statement about "encouraging signs" registers as evidence that the bet was right. Every hardliner statement from Tehran about keeping uranium stockpiles within Iran's borders registers as temporary noise to be explained away. The cognitive asymmetry is structured: good news confirms the thesis, bad news gets a rationalization.
The chart above shows Brent crude's price trajectory since the Hormuz closure, with diplomacy-driven drops overlaid against the sustained structural floor created by physical supply constraints. The pattern is consistent: each dip on diplomatic news has been followed by a recovery as the physical reality reasserts itself.
Each marked dip corresponds to a diplomatic statement from U.S. officials; all three dips were subsequently partially reversed as physical supply conditions reasserted themselves. The estimated $90 structural floor reflects analyst consensus on the level below which supply-constrained physical markets would quickly rebalance upward.
What the Research Says About Managing This Pattern
The Weinstein optimism bias research, and subsequent work by researchers including Daniel Kahneman and Amos Tversky on the planning fallacy, suggests a consistent finding: the bias is not corrected by providing more information. Telling a client that the Strait remains closed does not neutralize the optimism effect when the market is simultaneously pricing diplomatic progress. What does work, according to Kahneman's 2011 synthesis in "Thinking, Fast and Slow," is pre-mortem analysis: asking the investor to assume the negative outcome has already occurred and to reconstruct the path by which it happened.
Applied to the current energy situation, the pre-mortem question is not "will Hormuz reopen?" It is "if the ceasefire collapses in June, what does your portfolio look like and what will you wish you had done in May?" This reframing forces engagement with the adverse scenario rather than allowing the optimism bias to suppress it. It is, notably, not a recommendation to reduce energy exposure. It is a process for stress-testing a position under conditions the client may be cognitively reluctant to examine.