Oil price outlook: Higher-for-longer prices with risks skewed to upside
We maintain a bullish outlook for crude oil through Q2-Q4 of calendar year 2026, upgrading our Q4-CY26 Brent crude and WTI oil forecasts to $90 and $82 per barrel, respectively. The revision in oil prices reflects slower-than-expected normalisation of Persian Gulf production and exports, persistent damage to regional capacity, and unusually large inventory drawdowns.
Our base case assumes partial de-escalation in US-Iran negotiations by mid-May, with shipping and exports through the Strait of Hormuz normalising only by end-June, later than previously expected. Given that the Hormuz corridor accounts for around 20 per cent of global oil and condensate flows, the economic and price risks extend well beyond the immediate disruption window.
Persian Gulf supply shock and record inventory draws
Attacks, threats, and shipping paralysis during March-April 2026 has removed an estimated 7.5–9.1 million barrels per day (mbpd) of crude and products supply, with effective shortages as high as 12 mbpd at peak disruption. While Iran has maintained limited exports of 1.0-1.5 mbpd, the net global supply loss remains unprecedented.
We estimate that 14.5 mb/p of disrupted Persian Gulf production drove global oil inventories to draw at a record pace of 11-12 mbpd in April, far exceeding historical draw cycles. The cumulative inventory loss could reach 1.8 billion barrels by end of 2026.
Structural damage leaves a persistent 0.5 mbpd reduction in Gulf production capacity, only partially offset by above-pre-war output in Saudi Arabia and the UAE during H2-CY26. As a result, the market shifts from a 1.8 mbpd surplus in 2025 to a 9.6 mbpd deficit in Q2-CY26, sharply tightening balances.
Refining capacity losses deepen product market stress
The supply shock is compounded by refining outages across two major conflict zones. In Russia, repeated Ukrainian drone strikes have temporarily shut 17-20 per cent of the country's 6.6 mbpd refining capacity, equivalent to 1.1-1.3 mbpd at peak disruption. While throughput losses were limited to 3-6 per cent due to spare units and rapid repairs, product availability has been materially affected.
In parallel, the US-Iran conflict has shut in approximately 1.9 mbpd of refining capacity across the Gulf, including Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain, and Iraq. Damage to Iranian processing hubs and regional infrastructure has further tightened refined product markets, amplifying inflationary pressure well beyond crude prices.
UAE exits Opec
UAE will leave Opec in May 2026 which could see higher output from UAE, as country was limited by Opec/Opec+ quota to pump around 3 mbpd but it has a capacity closer to 4 mbpd. So once dust around strait of Hormuz settles, we may see higher flows from UAE.
Second-order effects: Demand destruction and macro stress linger in H2-2026
Sustained oil prices above $100-120/bbl and elevated refined product prices are now driving second-order economic effects. We expect global oil demand to contract by 1.7 mbpd year-on-year in Q2-CY26, with full-year 2026 demand down 0.5 mbpd, reflecting rising fuel costs, weaker industrial activity, and slowing transport demand.
Scenario analysis: Risks skew firmly to the upside
Adverse scenario: Brent averages around $95/bbl in Q4-2026 if Gulf exports normalise only by end-July.
Severely adverse scenario: Brent approaches $120/bbl, assuming delayed normalisation and 2.5 mbpd of permanent Gulf capacity loss, equivalent to Hormuz flows recovering only to 70 per cent.
Benign scenario: Brent averages just below $80/bbl if exports normalise by mid-June, with no lasting capacity damage and stronger US and core Opec supply response.
Overall, the scale and duration of the Hormuz disruption imply higher-for-longer prices and materially larger economic risks than suggested by crude balances alone.
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Disclaimer: This article is written by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.