Oil prices have cooled off after yesterday’s spike as investors are keenly eyeing the truce negotiations between the US and Iran ahead of the expiry of the two-week ceasefire this week. However, those who expect a sustained decline in the oil to pre-war levels in the case of extension of the existing ceasefire or a final agreement are in for a crude shock.
Brokerages estimate crude oil prices to remain high even if the blockade at the Strait of Hormuz — a key point of contention in the US-Iran peace talks — opens. Domestic brokerages have pegged oil prices to average at $85 per barrel in the near term.
Impact of Middle East war on oil supply
The closure of the Strait has resulted in a decline of 10.1 mmbpd in global oil supplied last month, with expectations of it deepening to ~13 mmbpd in April. IEA now expects global oil demand to decrease by 80 kbpd to 104.3 mmbpd in CY26 and global oil supply to dip by ~1.5 mmbpd to 104.7 mmbpd in CY26, underscoring the impact of the Middle East crisis. As a result, global oil surplus could only be at ~0.4 mmbpd in CY26 from 2.2 mmbpd in CY25.
Supplies via the Strait are at only 10% of the pre-war levels, suggests a report by Motilal Oswal Financial Services. Countries have started to explore alternative routes. The report added that exports via alternative routes, particularly Saudi Arabia’s west coast, Fujairah (UAE), and the Iraq-Türkiye (ITP) pipeline to Ceyhan, have scaled up sharply, rising to 7.2mb/d from sub-4mb/d levels before the war.
Why could oil prices remain high?
Motilal Oswal has raised its Brent crude assumptions upwards to $75/65 per bbl for FY27/28 from 60/60 per bbl, as current dynamics indicate a higher price floor due to delayed restoration of supply and export flows.
Echoing similar bullish views on oil, JM Financial said that oil prices may remain elevated at ~$85/bbl in the near term even after easing of the SoH blockage due to likely tightness in demand-supply gap as countries replenish and boost their strategic oil reserves, and due to gradual restoration of crude output as forced shutdown poses a risk to normalisation of output.
Furthermore, it said oil could trade at a $5–10/bbl of geopolitical risk premium after the unprecedented huge ~10mmbpd supply shock.
Motilal Oswal has pegged its Q1 forecast of oil at $85 per bbl as well, but it expects it to ease to $80/bbl in Q2, before correcting to $70/65 per bbl in Q3/Q4 in case of a de-escalation. “With disruptions largely logistical and limited infrastructure damage, shut-in production and export flows can return swiftly on de-escalation, potentially driving a sharp correction in prices,” it said.
Brent futures have been remarkably volatile since the start of the Iran war, rallying close to $120 a barrel before falling on the prospect of peace talks. On Tuesday they were trading close to $95 a barrel, in part based on a belief that the conflict will end soon.
The US-Iran ceasefire, which expires on Wednesday evening, is being keenly tracked by traders and investors alike. US President Donald Trump said on Monday that the American blockade would remain in place for now, and the ceasefire is not likely to be extended. Talks between the two countries are expected to take place in Pakistan.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
