Banks slash oil forecasts as Strait of Hormuz flows return to pre-war levels

OCBC Group Research, UBS and Public Investment Bank cut their crude price forecasts in early July after oil flows through the Strait of Hormuz returned to pre-war levels, reviving the oversupply narrative that had been sidelined during the conflict.

"Lower geopolitical risk and quick rebound in flows have led to a steeper price decline than we had expected," UBS said in a research note, cutting its 2026 Brent forecast by $9 to $84 a barrel and its 2027 estimate by $10 to $75.

Brent crude traded at $70.90 a barrel Tuesday, down 0.9%, while WTI fell 0.8% to $68.04. That compares with war-time highs near $120 a barrel reached during the conflict that shut the waterway. OCBC lowered its third-quarter Brent forecast to $75 from $85 and its second-quarter 2027 estimate to $71 from $75. Public Investment Bank expects Brent to trade in a $70-to-$85 range in the second half, assuming the interim U.S.-Iran agreement holds.

The rapid normalization of flows through the world's most important oil chokepoint — which handles about 20 million barrels a day, or roughly a fifth of global petroleum — has erased the geopolitical risk premium that had been priced into crude since the war began. The question now is whether the rebound can be sustained as the U.S. and Iran continue indirect talks in Doha.

Oil traffic surges, but recovery remains uneven

Vice President JD Vance said Tuesday that oil shipments through the strait have returned to and sometimes exceeded pre-war levels, even as total vessel traffic remains well below normal. About 240 ships transited the waterway last week, according to Lloyd's List data, compared with a pre-war daily average of 130 to 150. Marine intelligence firm Windward reported oil volumes leaving the strait reached 13.4 million barrels on June 24 and 11.7 million on June 25.

The divergence between overall maritime traffic and energy shipments reflects lingering caution among shipping companies. Container ships, bulk carriers and other non-energy cargo have been slower to return, as insurers and operators assess whether the security situation has stabilized. S&P Global Energy reported 78 vessels transited on June 24 — the highest single-day count since the war began — but traffic pulled back after a container ship was struck on June 25.

Iran's oil exports have surged since the U.S. lifted its blockade as part of the June 17 memorandum of understanding. Iranian Parliament Speaker Mohammad Bagher Ghalibaf said the country has exported more than 40 million barrels since restrictions were removed, after more than a month of complete export paralysis. TankerTrackers data cited by Al Jazeera showed Iran shipped about 50 million barrels in June, or roughly 1.66 million barrels a day.

Inventory rebuild expectations shrink

The speed of the recovery has forced banks to reassess supply-demand balances. UBS said the required inventory rebuild is now smaller than its earlier estimate of 1 billion barrels, as floating storage in the Gulf normalizes and demand picks up. The bank expects prices to rebound slightly to $80 a barrel in the second half but cautioned that the path to normalization could remain bumpy.

OCBC strategists said expectations of normalized flows quickly pushed crude prices back to pre-conflict levels, reviving the oversupply narrative. The bank now sees Brent averaging $75 in the third quarter and $71 by the second quarter of 2027, down from $85 and $75 respectively in its previous forecasts.

The last time oil flows through the strait were disrupted at this scale was during the Iran-Iraq war in the 1980s, when the so-called Tanker War targeted commercial shipping. That conflict took years to fully resolve, and the current recovery — while faster than many analysts predicted — remains contingent on the durability of the U.S.-Iran diplomatic track.

This article is for informational purposes only and does not constitute investment advice.