Banks Lower Oil Price Forecasts as Strait of Hormuz Deal Eases Supply Concerns

The potential reopening of the Strait of Hormuz is reshaping expectations for the oil market. After months of disruption tied to the U.S.-Iran conflict, the announcement of an interim agreement has shifted attention from supply risk to supply recovery. If the deal is officially signed on Friday, Persian Gulf exports could resume moving more freely, easing one of the biggest sources of pressure on crude markets.

The Strait of Hormuz remains central to the market's focus because it is a major transit route for Persian Gulf crude exports. Any disruption through the waterway can quickly tighten supply expectations, while any progress toward reopening it can ease concerns just as quickly. At the G7 Summit yesterday, President Trump said, "We have a lot of lanes right now already," when asked about the reopening of the Strait of Hormuz.

As expectations for a faster reopening grow, crude prices have moved lower. This morning, prompt WTI futures were trading down by more than $2 per barrel, extending yesterday's losses after closing about $4 per barrel lower. Prices fell to their lowest level since the beginning of the war after the U.S.-Iran deal to reopen the Strait of Hormuz was announced.

Goldman Sachs Research lowered its Brent forecast for the fourth quarter of 2026 to $80 per barrel, down from its previous forecast of $90. The bank also 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. The change reflects the bank's updated assumption that Persian Gulf exports could normalize to pre-war levels by the end of July, instead of by the end of August as previously expected.

Morgan Stanley also adjusted its outlook. The bank now expects Brent to average $90 per barrel in the third quarter of 2026, down from its previous forecast of $100. Its fourth-quarter Brent forecast remains at $80 per barrel. According to Bloomberg, Morgan Stanley's analysts said the deal marks a key step toward de-escalation and higher exports through the Strait of Hormuz, although they also noted that important risks remain.

Citi has taken a more bearish view than its peers. The bank lowered its Brent forecast to $75 per barrel for the third quarter of 2026 and $70 per barrel for the fourth quarter. For 2027, Citi now expects Brent to average $65 per barrel, down from its previous forecast of $80. Citi's new base case assumes the memorandum of understanding is signed and that flows through the Strait of Hormuz normalize by mid-to-late July.

Additional banks and research groups have also released crude price outlooks for 2026 and 2027. Not all of them changed their forecasts, but Standard Chartered, BofA, Barclays, BMI, and HSBC reported revised expectations compared with their previous outlooks. These updates show how analysts are reassessing crude prices as the market weighs the potential reopening of the Strait of Hormuz, the timing of tanker flow normalization, and the risk of renewed supply disruptions.

It is important to note that lower crude prices do not mean fuel markets will normalize immediately. Bloomberg reported that U.S. drivers may continue to face elevated pump prices for the rest of the year, if not longer, even as the interim peace deal begins to unwind the Middle Eastern conflict. Gasoline prices have fallen about 10% from their late-May high, according to American Automobile Association data, but inventories remain tight. Gasoline stocks are at their lowest seasonal level since 2014, and the U.S. Energy Department's analysis arm does not expect prices to fall below $3 per gallon through the end of 2027, assuming Strait of Hormuz shipments resume in the third quarter and slowly ramp back to normal.