Oil forecasts raised as prolonged Strait of Hormuz disruption continues

Commodities, Food & Agri Energy Israel have revised higher their oil price forecasts as peace talks between the US and Iran stall, with no immediate signs of a resumption in flows through the Strait of Hormuz. Eight weeks have passed since US and Israeli strikes on Iran, leading to the ongoing blockade of the Strait of Hormuz—a critical chokepoint for global oil trade, handling roughly 20 million barrels per day (b/d) prior to the conflict. After accounting for diverted oil via pipelines and the slow flow of tankers through the Strait of Hormuz, around 14 million b/d of oil supply remains disrupted. Over the first two months of the conflict, approximately 850 million barrels of supply have been lost. The disruption continues to grow daily without resolution. While Iranian oil had previously moved through the Strait largely unaffected, the US blockade introduces new risks. Prior to the blockade, Iranian oil exports were estimated at around 1.5 million b/d. Initially, a gradual resumption of flows was expected in April, but this has not materialized. Consequently, forecasts have been revised: oil flows through the Strait of Hormuz are now expected to resume slowly in May and June, remaining below pre-war levels for most of the year. This delay allows for gradual upstream production recovery, which has been halted due to storage constraints, and accounts for potential infrastructure damage that could further delay returns to pre-war levels. The new base case forecasts ICE Brent averaging $104 per barrel for the second quarter of 2026 (up from $96 previously) and $92 per barrel for the fourth quarter (up from $88 previously). Low inventories and the need to restock commercial or strategic reserves suggest oil prices will remain supported. Upside risks include a near-total closure of the Strait of Hormuz persisting through May, potentially keeping Brent above $100 per barrel for the remainder of the year. A more significant risk is renewed escalation halting oil supply by the end of the second quarter, disrupting Saudi crude shipments via the Red Sea and UAE exports from Fujairah, potentially driving prices to new record highs. Three scenarios for oil prices are outlined: base case, scenario 2, and scenario 3. Price forecasts are period averages. Demand destruction is estimated at 1.6 million b/d due to flight cancellations, reduced petrochemical plant run rates, and energy consumption measures in Asia. While Brent futures have risen 80% this year, gasoil and jet fuel prices have surged 102% and 120%, respectively, indicating stronger demand destruction from refined products. Further price increases may be needed to drive additional demand destruction if supply disruptions persist.