Why are oil prices still under $100 per barrel?
That’s the question Macquarie Group economists, including Ric Deverell, Chief Economist and Head of Macro Strategy at Macquarie Group, asked in a report sent to Rigzone on Wednesday.
Answering this question in the report, the economists pointed to “inventories”.
“The Strait of Hormuz has been effectively closed for three months, reducing daily global oil supply by around 14 percent, the largest reduction in history,” the economists said in the report.
“However, while prices initially increased sharply, recently the market has remained relatively calm, with front-month Brent currently trading below $100 per barrel, roughly one-third above its pre-conflict level and half the ~$200 real high seen in 2008,” they added.
On the surface, the price response appears to be a paradox, the BMI analysts stated in the report.
“However, upon deeper inspection, the muted reaction has been mainly a function of the oversupply seen before the war, with pre-war inventories very high on the back of what the International Energy Agency called ‘untenable surpluses’,” they said.
“To badly paraphrase former UK Prime Minister Harold Macmillan, ‘inventories, my dear boy, inventories’,” they added.
In the report, the economists noted that those large inventories have meant that the world has so far mostly avoided physical oil and product shortages. They added, however, that if the Strait reopens soon, they expect prices to fall sharply.
“With stocks drawing rapidly” though, the economists warned that, if the Strait of Hormuz remains closed, “at some point prices will need to move much higher”.
“It is difficult to estimate how quickly inventories will fall in coming months, and at what point markets will materially tighten,” the economists pointed out in the report.
“However, the following rules of thumb are probably instructive; global inventories fell by ~five million barrels per day over the past month. If that continues, inventories will be back to 2025 lows by early July, approaching the 2022 trough by early August, and moving below the range seen so far this decade in September,” they said.
“That suggests the market will be ok for another month or two, especially given commercial crude stocks have been cushioned by SPR [Strategic Petroleum Reserve]/product draws. However, if the Strait remains closed at the end of the northern summer (Labor Day is 7 Sep), physical availability will tighten materially,” they warned.
The economists projected in the note that if the Strait is still closed on Labor Day, front month Brent prices could hit between $130 and $150 per barrel. If the war continues into 2027, prices of around $200 per barrel “may be needed to balance supply and demand”, the economists warned.
In a BMI report sent to Rigzone by the Fitch Group on Thursday, analysts at BMI, a unit of Fitch Solutions, revealed that they had “curbed” their Dated Brent forecast “amid bearish market sentiment”.
“This month we are making a small downward revision to our annual forecast for Dated Brent in 2026, from $90 per barrel, to $88 per barrel,” the BMI analysts said in the report.
“Our forecast for Brent futures remains unchanged, at $81.5 per barrel. The revision for the physical Dated Brent contract is due to a weaker than expected price performance in May, weighing on our Q2 average,” they added.
“While we have seen some limited impacts on end-user demand for fuel, there have been more significant curbs on the use of crude, with refinery run rates in Asia severely depressed and imports contracting sharply, loosening market fundamentals,” they continued.
“At the same time, linkages to the futures market have weighed on price action via sentiment channels, with investors pricing in sanguine expectations for the U.S.-Iran peace deal and post-conflict recovery period,” they went on to state.
The analysts highlighted in the report that they were maintaining their forecasts for 2027, “set at $72.5 per barrel and $72.0 per barrel for Dated Brent and Brent futures, respectively, assuming that a deal is reached in mid-to-late June, allowing for a broad normalization of production and trade over H2 2026,” they said.
The BMI analysts stated in the report that Dated Brent “performed relatively poorly over May”, highlighting that it averaged around $110 per barrel, which they pointed out was “far below the April average ($120 per barrel)”.
“As has happened multiple times over the course of the conflict, an emergent rally at the start of the month was derailed by the postponement of renewed U.S. attacks on Iran and signs of progress in the negotiations,” the BMI analysts said in the report.
“Despite repeated delays to a deal and fractures in the ceasefire agreement, Dated Brent has continued trading downwards, reaching around $98 per barrel at the time of writing,” they added.
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