Oil: Gradual downside with security premium – OCBC

OCBC Bank’s Sim Moh Siong and Christopher Wong highlight that Oil and tech-led equity weakness have driven a stronger US Dollar, higher global yields and softer Gold. They expect Oil prices to decline only gradually, maintaining Brent forecasts at USD75/bbl by end-2026 and USD71/bbl by mid-2027, as a persistent security premium and US-Iran tensions keep inflation and terms-of-trade risks elevated.

Brent path shaped by security risks

"Oil prices and tech-led equity weakness dominated overnight trading. Higher crude prices pushed global bond yields and the USD higher, while gold retreated. Oil rallied amid renewed concerns over US-Iran tensions after Washington revoked its waiver for Iranian oil sales following attacks on three vessels in the Strait of Hormuz."

"Our view remains that the next leg lower in oil prices will be more gradual than the sharp correction seen in 2Q26. We maintain our Brent forecasts of USD75/bbl by end-2026 and USD71/bbl by mid-2027. A persistent security premium reflecting disruption risks is likely to slow the pace of decline."

"A return to full-scale US-Iran conflict appears unlikely given growing US political pressure to keep oil prices contained ahead of the November midterm elections. However, there is still no clear path to fully securing the Strait of Hormuz. For now, the US is likely to rely on economic pressure to retain leverage in ongoing negotiations with Iran. Another key question for oil is whether China will increase imports further, particularly after reports that it has been purchasing discounted Saudi crude."