Oil prices are experiencing a significant downturn, poised for their largest quarterly loss since the COVID-19 pandemic in early 2020. This decline is largely attributed to investor focus on potential US-Iran talks in Doha, even as an interim ceasefire in the four-month-long war remains fragile. Brent August crude futures, which expire today, were down $0.30 at $72.85 a barrel, and have fallen by about 21% this month. The more active September contract was at $73.84 a barrel. US West Texas Intermediate (WTI) for August delivery dropped $0.13 to $70.62 a barrel, putting it on track for a 20% decline in June. Both Brent and WTI are now trading close to their pre-war price levels.
Analysts are pointing to a shift in market sentiment from concerns about supply shortages to worries of a surplus. Morgan Stanley, for instance, cut its 2027 Dated Brent forecast by $5 a barrel, expecting $75 in the first half and $70 in the second half, citing an anticipated build-up in OECD commercial oil inventories. The bank now projects a global oil market surplus of 4.8 million barrels per day in 2027. Goldman Sachs also lowered its fourth-quarter 2026 Brent forecast from $90 to $80 a barrel and its 2027 average forecast from $80 to $75 a barrel. JPMorgan expects Brent to average $80 in the fourth quarter and decline to an average of $64 in 2027.
The improvement in supply, particularly from the Middle East, is a key factor. Rystad Energy estimated that approximately 2 million barrels a day of oil production have been restored across the Gulf in the past three weeks. Despite fresh ship attacks in the Strait of Hormuz, Middle Eastern producers are increasing oil and LNG loadings. Analysts like Warren Patterson from ING note that oil near $70 a barrel has "close to zero geopolitical risk premium" priced in, with expectations of a 2027 surplus weighing heavily on market sentiment. The uncertainty surrounding the US-Iran talks, despite the de-escalation, means that risks in the energy sector persist, according to Rania Gule from XS.com. While there is cautious hope for a positive outcome from the Doha talks, tangible signs of de-escalation and normalization of flows through the Strait of Hormuz are still awaited.
