The IEA and Goldman Sachs expect significant oil market surpluses in 2027. Combined with the reopening of the Strait of Hormuz, rising Iranian and Russian exports, and declining demand in Asia and Europe, this factor is pushing Brent prices lower. Let’s analyze the situation and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The US dollar is putting pressure on Brent.
- Exports from Iran and Russia are growing rapidly.
- The IEA and Goldman Sachs expect a global oil market surplus in 2027.
- Profits can be taken if Brent drops to $70.
Weekly Fundamental Forecast for Oil
During the conflict in the Middle East, rising oil prices were seen as a key factor behind the strengthening of the US dollar, as the currency of a net energy exporter. However, as soon as Donald Trump reached an agreement with Iran and Kevin Warsh delivered a hawkish surprise, the rally in the USD index became a major driver of Brent’s worst quarterly performance since the pandemic.
Brent Price Change QoQ
Source: Bloomberg.
Nowadays, it is both easy and dangerous to be an optimist. Investors reacted with great enthusiasm to the news of the reopening of the Strait of Hormuz. Morgan Stanley believes that an increase in traffic through the strait to 65% of pre-war levels—equivalent to 11–12 million barrels per day—will be enough for the oil market to reach equilibrium in the near future.
Flows through the world’s main oil supply route will grow, while bears’ key arguments regarding Brent—namely, record-high US energy exports and a decline in Chinese imports—remain in play. This allows the bank to lower its Brent crude price forecast by $15 in the third quarter and by $5 in the fourth quarter, to $75 per barrel.
Oil Shipments Through Strait of Hormuz
Source: Reuters.
However, bears’ troubles do not end there. The lifting of sanctions on Iran has allowed it to export about 40 million bpd since the deal with the US was signed. At the same time, Tehran intends to ramp up production to 3.3 million bpd as quickly as possible. The lifting of restrictions has also had a positive impact on Russia. Its exports have risen to 4.13 million bpd, the highest level since the start of the armed conflict in Ukraine in 2022.
Another driver behind Brent’s surge is the active replenishment of oil inventories in Europe and Asia from the US, meaning that these regions will not need as many barrels in the next 2–3 months as they did before.
Forecast for Oil Supply and Demand
Source: Reuters.
According to the IEA, oil supply in 2027 will increase by 8 million bpd to 110.3 million bpd. Demand will not keep pace, resulting in a surplus of 5 million bpd. Goldman Sachs cites a figure of 3 million bpd, of which 1 million bpd will go toward replenishing strategic reserves that have shrunk considerably. However, this does not change the bearish outlook.
Thus, optimism is running high. However, the nearly 40% drop in oil prices from their March peaks suggests that most of the negative factors are already priced in. Coupled with Iran’s demands for sole control over the Strait of Hormuz, this could lead to disappointment.
Weekly Trading Plan for Brent
Which direction will Brent go? Will it find support below $70–$80 as previously expected, or will it slide toward the second bearish target of $64.5? The first scenario is more likely to materialize, which provides grounds for partial profit-taking.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of UKBRENT in real time mode
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