Oil prices hold firm despite Persian Gulf supply growing
The desk posits that despite rising oil supply from the Persian Gulf, prices are buoyed by geopolitical concerns and potential risks to sustainability. Per the full note , even with supply recovering to around 70-75% of pre-war levels, concerns over escalating conflicts and the lack of a US-Iran deal maintain a significant risk premium in the market. Our outlook suggests oil prices could trend lower into year-end, yet current dynamics indicate uncertainty that may support the prevailing oil price levels. Furthermore, as we head into 4Q26, the desk holds a cautious $80/bbl forecast while acknowledging higher-than-normal uncertainty surrounding these predictions.
What the desk is arguing
The desk frames the current oil market as one where price levels are supported by geopolitical anxieties rather than mere supply increases. Despite an uptick in oil flows from the Persian Gulf, which are reported to be at approximately 75% of pre-war levels, the ongoing conflicts—including Houthi missile strikes on Saudi facilities—paint a concerning picture for long-term supply sustainability.
This rationale leads to a firm valuation target of $80/bbl for Brent Crude in Q4 2026, a case premised on the necessity of a US-Iran deal to alleviate the risk premium embedded in oil pricing. The desk emphasizes that without such a diplomatic breakthrough, or continued supply resilience, bearish pressures could emerge, trending oil prices lower into the New Year.
Where it sits in our coverage
Our consensus for 4Q26 oil prices aligns with notable firms as follows: - Morgan Stanley: $81/bbl - Goldman Sachs: $79/bbl - UBS: $82/bbl
This viewpoint aligns closely with Morgan Stanley's forecasts, which reflect a similar cautious but slightly more optimistic outlook compared to our forecast of $80/bbl. However, it notably diverges from BofA's lower target of $71/bbl for 2026.
How other firms see it
Firms such as Goldman Sachs and UBS hold similar bullish perspectives, indicating cautious optimism about oil prices through year-end on the back of geopolitical concerns. In contrast, BofA opts for bearish positioning, considering potential oversupply and macroeconomic headwinds.
Traders should keep an eye on related dynamics in energy currency pairs, particularly the influence of Brent crude prices on the CAD/USD and NOK/USD trajectories, as fluctuations there may impact broader currency volatility.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Oil prices remain resilient despite increased Persian Gulf supply.
- 02Geopolitical tensions and risks maintain a substantial market risk premium.
- 03Current consensus forecasts range from $71 to $82/bbl, with our target at $80/bbl.
- 04The lack of a US-Iran deal could lead to bearish signals if supply continues to hold.
Market implications
Watch the $80/bbl level closely as a significant psychological barrier for Brent crude. The direction of oil prices will likely influence CAD and NOK currency pairs, which are sensitive to energy price movements, indicating a potential repricing amid continued geopolitical tensions.
Risks to this view
A swift de-escalation of geopolitical tensions, particularly involving a US-Iran diplomatic breakthrough, could sharply reduce the risk premium and consequently lower oil prices. Additionally, a marked increase in production capabilities among OPEC members could lead to an oversupply scenario.
Articles Oil prices hold firm despite Persian Gulf supply growing Published 10:05 Commodities, Food & Agri Energy Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Oil prices remain firm despite rising supply from the Persian Gulf. We expect oil prices to trade lower into year-end. More positive signs of a potential US-Iran deal would give us more confidence in this view.
Meanwhile, European gas looks vulnerable heading deeper into the heating season Warren Patterson Oil prices are holding firm despite Persian Gulf supply increasing Persian Gulf oil flows pick-up There are few signs of de-escalation in the Middle East. If anything, it appears as though the conflict is broadening, with the Houthis in Yemen increasingly targeting Saudi Arabia. Despite little improvement in the geopolitical environment, oil flows from the Persian Gulf have been trending higher with supply from the region returning to 70-75% of pre-war levels, although there are some estimates suggesting we could be back to as high as 80-90% of pre-war flows.
The fact that oil prices are well-supported despite the improvement in flows from the region appears to reflect concerns over how sustainable this supply is, particularly when considering the geopolitical backdrop. The market continues to price in a large risk premium in the absence of a deal between the US and Iran. And to see this risk premium erode, the market may need the comfort of a deal.
Failing that, time may be enough for oil prices to trend lower, assuming supplies from the region continue to hold up. For now, we are holding onto our 4Q26 Brent forecast of $80/bbl and FY27 forecast of $71/bbl. However, given the high level of uncertainty, this is a low-conviction call, specifically for 4Q26.
As oil flows from the Persian Gulf have picked up, another bottleneck has become increasingly noticeable in the oil market. There is significant tightness in the tanker market, which has seen tanker freight rates surge to record levels. Oil flows from the Persian Gulf have become increasingly inefficient due to the challenging environment, which has absorbed more of the global tanker fleet.
And the only way this starts to normalise is if the way oil flows from the region also starts to normalise. The other pain point for the oil market remains diesel, which will be a concern as we head further into the Northern Hemisphere winter. Disruptions from the Persian Gulf and Russia have tightened the market, while the risk of export restrictions from the US has kept the market nervous.
The risk of US export restrictions appears to have subsided, with Europe set to release diesel from strategic reserves. Furthermore, expensive freight suggests that refined product prices are likely to remain elevated. Natural gas vulnerable heading into heating season European natural gas prices have traded at their highest level since December 2022, with supply concerns growing as the region heads into the heating season.
Unfortunately for the natural gas market, we have not seen a similar recovery in LNG flows from the Persian Gulf as we have with oil. Therefore, LNG flows from the region remain down about 80% year-on-year. The market is increasingly accepting that Persian Gulf LNG could remain largely absent from global markets for much of the Northern Hemisphere winter.
This means Asia and Europe will continue competing for spot cargoes throughout the winter, keeping prices well supported and leaving the market vulnerable to further spikes. European gas storage remains a concern, at just under 75% full, well below the five-year average of 89%. Low storage has seen the German government instruct state-owned SEFE to buy and store an additional 8TWh of natural gas by 15 December.
The prospect of essentially forced buying provides further support to the market. With little sign of an imminent recovery in Persian Gulf LNG supply, weather will be crucial this winter, and there is growing expectation that Europe will experience a winter of milder temperatures due to El Niño, which would provide some relief to the market. However, it is not a strong relationship, and El Niño does not guarantee milder temperatures.
The North Asia winter will also be important for the LNG market, as El Niño can also typically mean milder temperatures in this region. We now expect TTF to average EUR73/MWh over the 26/27 winter, up from a previous forecast of EUR65/MWh. The market will likely be very volatile over this period, given the lower starting point for gas storage.
Prices are then expected to sell off aggressively from 2Q27 as Persian Gulf supply normalises, and we see a further ramp-up in US LNG export capacity. WTI TTF Strait of Hormuz Russia-Ukraine Persian Gulf Natural gas Monthly Economic Update Middle East LNG Geopolitics Freight Energy prices Diesel Brent Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Warren Patterson Head of Commodities Strategy Warren Patterson is Head of Commodities strategy based in Singapore. He joined the bank in April 2016 and covers the entire commodities complex. Previously, he worked at a commodities trade house… In this article Persian Gulf oil flows pick-up Natural gas vulnerable heading into heating season
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