(Investing) – UBS has lowered its oil price forecasts for 2026 and 2027 amid a faster-than-expected recovery in flows through the Strait of Hormuz following an interim U.S.-Iran memorandum of understanding (MoU) signed on June 17.
The bank now expects to average $84 a barrel in 2026, down $9 from its previous estimate, and $75 a barrel in 2027, a $10 cut. forecasts were reduced to $79 a barrel for 2026 and $71 for 2027.
“Lower geopolitical risk and quick rebound in flows have led to a steeper price decline than we had expected,” analysts led by Henri Patricot said in a Wednesday note.
The team expects Brent to bounce back slightly to $80 a barrel on average in the second half of 2026, down from earlier estimates of $105 for the third quarter and $90 for the fourth quarter, as floating storage in the Gulf normalizes and demand picks up.
The bank’s long-term price assumption remains unchanged at $75 a barrel from 2028.
Since the MoU was announced, oil transits through the Strait have recovered to around 50% of pre-conflict levels, while Iranian exports have also regained some momentum as a U.S. blockade eases.
UAE exports have returned to nearly 85% of pre-conflict levels, benefiting from bypass routes, while Saudi exports remain 25% below pre-conflict levels, though June volumes rose about 10% from May.
The analysts flagged that risks to the outlook remain two-sided. On the upside, a breakdown of the MoU could push prices back toward $100 a barrel, with a spike to $120 or more possible if major oil infrastructure is targeted and conflict extends beyond summer.
Conversely, a faster ramp-up in flows, combined with increased production from the UAE and Iran, “could send Brent back below $70/bbl,” with a scenario combining that with greater Venezuelan output recovery potentially pushing prices to $60 or below.
UBS also cut its 2027 inventory rebuild estimate to around 1 billion barrels, down from roughly 1.5 billion previously, as it no longer expects as large a stock deficit given the pace of the supply recovery.
The bank’s balances show the market still in deficit through the third quarter of 2026 before shifting into surplus of 2.9 million barrels a day in the fourth quarter and widening to 3.8 million barrels a day in 2027.
China’s role as a swing buyer was also highlighted, with the country’s crude imports falling sharply to 6 million barrels a day in June, well below the typical 10-11 million barrel range.
