Fitch Ratings has modestly raised its 2027 oil price assumptions and increased its 2026-2027 TTF gas assumptions due to the Iran conflict.
We have maintained our 2026 Brent price assumption at USD87/barrel, as year-to-date dynamics have been in line with our expectations. Oil prices fell sharply to close to USD70/barrel in mid-June after the US and Iran signed a memorandum of understanding to end the war. Flows through the Strait of Hormuz recovered to 75% of pre-war levels by end-June.
However, renewed hostilities and Saudi Arabia’s East-West pipeline shutdown, an alternative route bypassing Hormuz, have since lifted Brent to about USD100/barrel on average to date in September. We expect prices to fall once flows through the East-West pipeline resume.
Crude flows through Hormuz and alternative pipelines have reached near pre-war levels, as we expected. We continue to forecast the global oil market to move into oversupply in 4Q26, putting prices under pressure. However, we have raised our 2027 Brent forecast modestly to USD70/barrel from USD65/barrel to reflect a geopolitical risk premium. This reflects uncertainty about the timing of the conflict resolution (our new assumption is during 1Q27) and a risk of further escalation, although likely contained.
We view the continued transit of 10 million barrels per day (mmbpd) through Hormuz, using oil shuttling, as sustainable even without a peace deal. This, together with two pipelines in Saudi Arabia and the UAE that bypass Hormuz, supports crude flows at 90% of pre-war levels. In August, UAE output was 111% of pre-war levels. Saudi oil supply in August was at 75% of the pre-war level, according to OPEC, while production varied between June and August. Kuwait and Iraq, which lack alternative export routes, had restored output to 76% and 87%, respectively. The UAE is also building a second pipeline bypassing Hormuz, which will double its alternative export capacity by mid-2027.
Oil that would otherwise transit the Red Sea through the Bab al-Mandeb Strait could be rerouted through the Suez Canal and the SUMED pipeline, mitigating the impact of a potential tightening of Houthi control over the strait.
We expect the global oil market to be materially oversupplied in 2027, irrespective of a peace deal, but the latter would widen the oversupply. We anticipate oil production outside the Middle East to rise by 1.5 mmbpd in 2026 and by a further 1 mmbpd in 2027, led by the US, Canada, Brazil, Argentina and Guyana. OPEC+ and the UAE are likely to boost production above previous quotas to offset war-related losses.
Demand destruction of about 5 mmbpd in 2Q26 helped balance the market, as we expected. Asia accounted for nearly two-thirds of the decline, and petrochemical feedstocks for almost half. China recorded the largest fall, at 1.5 mmbpd. We expect a gradual global demand recovery in late 2026.
Global observed inventories fell to 7.8 billion barrels in August from the peak of 8.2 billion barrels in early 2026, in line with the 400 million-barrel release announced by the IEA. Inventories should remain comfortable at about 7.8 billion barrels, broadly in line with the 2021-2024 average.
There is a high degree of uncertainty around the 2027 Brent assumptions. On the upside, geopolitical uncertainties could result in prices averaging USD85/barrel, while on the downside a rapid recovery in supply could cause prices to fall to USD55/barrel if a durable peace agreement is reached in 1Q27 and the geopolitical risk premium falls sharply.
The increased TTF gas assumptions reflect disruptions to LNG flows through Hormuz, which accounted for 20% of global LNG supply before the conflict. EU gas storage is only two-thirds full, sufficient to avoid supply disruptions during winter but well below the 80%-90% levels at this time in 2022-2025.
Our Henry Hub assumptions remain unchanged due to limited spare US liquefaction capacity.
Source: Fitch Ratings
