It was always clear that a ceasefire in the U.S. war with Iran would cause oil prices to fall, but few expected prices to fall this fast and this dramatically. Brent crude, the international benchmark price, is now trading around $72 per barrel, the same level ir was before the war -- even though transit through the Strait of Hormuz is far from solved, and Iran has continued to attack ships traveling through the waterway.
The dramatic change in the oil market has led analysts to revise not just their near-term price assumptions, but even their expectations for 2027 prices.
"The oil price bubble has burst," wrote energy research firm Wood Mackenzie in reducing its 2027 price forecast to $78, even though it doesn't expect Middle East oil operations to go fully back to normal for "the better part of a year."
The path of oil prices has been a conundrum for most of the war, and the puzzle is continuing even as the countries take steps toward peace.
The basic question remains: why are prices so low when oil supplies are still nowhere near normal? If prices continue to stay low, it will be bad news for oil producers, whose windfall from the war will be shorter-lived than expected. It's one reason why U.S. producers like Exxon Mobil and Chevron have fallen more than 20% from their highs this year.
On Friday, JPMorgan sharply reduced its oil price forecast for the rest of the year and 2027. Its third-quarter price target dropped to $86 per barrel from $104; its fourth-quarter target dropped to $80 from $98; and its 2027 target dropped to $63 from $75.
Natasha Kaneva, the bank's lead global commodities analyst, wrote that the decision to lower the target was based on new evidence. It turns out that there was much more oil demand destruction than the bank had initially assumed, meaning that people were using much less oil than analysts had expected.
Initially, Kaneva had assumed that demand would only fall a bit, and that companies would have to take oil out of storage to supply the market. But because people simply stopped using oil, those inventories have not been depleted as much, changing the overall supply-demand balance.
"When commercial inventories decline, prices typically rise as market participants compete for an increasingly scarce physical supply," she wrote. "But when the market clears through weaker demand, the price response works in the opposite direction."
Kaneva also said that oil shipments through the strait started up earlier than the bank had expected, because the U.S. facilitated dark-of-night tanker transports before a formal agreement was announced.
Other banks and research organizations have also been reducing their longer-term price targets this month since the U.S. and Iran signed a memorandum of understanding. On paper, the oil market could be oversupplied next year by as much as 4 million barrels per day, which could keep prices below $70, Citi said.
The bank reduced its average price forecast for the third quarter to $75 from $110, and dropped its 2027 forecast to $65 from its previous $80. Citi advised investors to "sell summer oil rallies."
Write to Avi Salzman at avi.salzman@barrons.com
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(END) Dow Jones Newswires
June 29, 2026 12:54 ET (16:54 GMT)
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