Key Moments
- OCBC strategists increased their end-2026 Brent crude forecast to USD 80/bbl from USD 75/bbl, citing a slower-than-expected recovery in Middle East supply.
- Brent has traded above USD 90/bbl amid escalating US-Iran tensions and ongoing threats to shipping through the Strait of Hormuz.
- Falling inventories, higher transport costs, and emerging diesel shortages have become key constraints, with diesel identified as the primary bottleneck in the oil market.
Forecast Revision on Prolonged Middle East Disruptions
OCBC strategists Sim Moh Siong and Christopher Wong have revised their end-2026 Brent crude oil price projection, increasing it to USD 80/bbl from a previous estimate of USD 75/bbl. The change reflects their view that disruptions to supply from the Middle East have lasted longer than initially anticipated.
They highlight that Brent futures have traded above USD 90/bbl as geopolitical tensions between the US and Iran intensify and concerns persist about the safety and reliability of shipping routes through the Strait of Hormuz.
Market Dynamics and Geopolitical Backdrop
The strategists describe a market environment in which geopolitics remains the primary driver of oil prices more than five months into the Middle East conflict.
According to their assessment:
- US-Iran negotiations over reopening the Strait of Hormuz are described as stalled.
- The anticipated recovery in Middle East supply is now seen as slower, prompting the upward revision in the Brent forecast.
Key Constraints: Inventories, Transport Costs, and Diesel
OCBC notes that structural pressures have emerged across the physical oil market. They point to declining inventories, rising transport costs, and growing signs of diesel shortages as central constraints shaping price dynamics.
The strategists state that while the oil market has adapted to crude supply disruptions, this adjustment has come at the cost of drawing down existing buffers.
| Factor | Observation |
|---|---|
| Brent price action | Traded above USD 90/bbl as Middle East tensions intensified |
| End-2026 Brent forecast | Raised to USD 80/bbl from USD 75/bbl |
| Supply outlook | Slower recovery in Middle East supply amid stalled US-Iran talks on the Strait of Hormuz |
| Market buffers | Inventories are falling as the market adjusts to disruptions |
| Cost pressures | Transport costs are rising |
| Product bottleneck | Diesel shortages emerging as the key constraint |
Shift in the Market Bottleneck
In their commentary, the strategists emphasize that the nature of constraints in the oil complex has changed. They argue that crude oil itself is no longer the principal bottleneck:
“The oil market has largely adjusted to crude supply disruptions, but only by depleting buffers. The key bottleneck is no longer crude. It is diesel.”
Geopolitical Risk Embedded in Prices
OCBC underscores that ongoing geopolitical risk is now deeply reflected in current pricing. They note:
“Inventories are falling, transport costs are rising, and diesel shortages are emerging as the key constraint, keeping geopolitical risk firmly embedded in prices.”
They also remark on recent price action:
“Brent crude rose above USD90/bbl overnight as Middle East tensions escalated, with the US and Iran exchanging strikes for the first time in roughly a month and new concerns emerging over shipping through the Strait of Hormuz.”
Summarizing the broader backdrop, they state:
“More than five months into the Middle East conflict, oil prices remain driven by geopolitics. We raise our end-2026 Brent forecast to USD80/bbl from USD75/bbl, reflecting a slower recovery in Middle East supply as US-Iran negotiations over reopening the Strait of Hormuz remain stalled.”
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