Wall Street banks, including Morgan Stanley and Goldman Sachs, have reduced their oil price forecasts for the upcoming quarters, attributing the change to an interim deal to reopen the Strait of Hormuz. This deal has led to optimism about a revival of Middle East crude output sooner than expected. Goldman Sachs anticipates a full recovery of oil flows as early as the end of July.
Morgan Stanley now projects Brent crude to average $90 per barrel in the third quarter of 2026, a decrease from its previous forecast of $100. Its fourth-quarter Brent forecast remains at $80 per barrel. Goldman Sachs Research has also lowered its Brent forecast for the fourth quarter of 2026 to $80 per barrel, down from $90, and reduced its 2027 average Brent forecast to $75 per barrel from $80. For WTI, Goldman now expects prices to reach $75 in the fourth quarter of 2026 and $70 in 2027, reflecting the assumption that Persian Gulf exports could normalize by the end of July.
The reopening of the Strait of Hormuz has quickly flooded oil markets, causing weakening markets across Europe and Asia. Angolan crude, typically favored by China, has been selling at significant discounts, sometimes nearly $10 per barrel below the global Dated Brent benchmark. Additionally, some Chinese refiners have begun offering oil cargoes for sale, a reversal of typical patterns. The global Brent benchmark has fallen below $75 per barrel for the first time since the war began, roughly halving in value from its peak of over $140 per barrel in early April.
Despite the current oversupply, analysts like Morgan Stanley's Martijn Rats suggest the physical reality is more complex than price action indicates. While tanker flows are expected to normalize over several weeks, global oil markets still face an average deficit of approximately 3.4 million barrels per day in Q3, or 1.1 million barrels per day looking at OECD inventories. Significant inventory draws accumulated since the conflict began will need to be rebuilt, potentially absorbing some of the excess supply. However, the market remains vulnerable to new disruptions, even as it looks closer to balance by the fourth quarter.
