UBS has revised down its near-term oil price outlook after Brent crude declined about $15 a barrel in the 10 days following the June 14-15 memorandum of understanding between Washington and Tehran. The bank attributed the initial leg lower to a rapid release of supply that emerged as tankers previously stranded in the Gulf began to move again.
Brent has traded below $73 a barrel, a level last seen in late February before the regional conflict began. UBS strategist Giovanni Staunovo highlighted that several factors were already pressuring prices prior to the MoU, and that the deal accelerated an existing downtrend.
Staunovo listed five pre-existing headwinds that had been weighing on the market: a marked drop in Chinese crude imports from 12.58 million barrels per day in February to 7.82 million barrels per day in May; record-level U.S. crude exports; ongoing strategic reserve releases across OECD countries; and actions by Saudi Arabia and the UAE to route more flows via overland pipelines to bypass the Strait of Hormuz.
Since the MoU was signed, the pace of the price fall has quickened as previously immobile tonnage began exiting the Gulf. UBS estimates that Iran has exported around 40 million barrels since the deal, while nearly 30 million additional barrels came out of non-Iranian Gulf floating storage. The bank also estimates that between 50 million and 100 million barrels remain trapped in the Gulf, meaning a fast re-entry of that tonnage could add further short-term downward pressure.
Despite the recent weakness, UBS expects the softness to be transitory. The bank argues that once the immediate wave of additional outbound supply is absorbed, attention will shift to inbound flows and the constraints around re-establishing normal shipping patterns.
Staunovo noted that the bulk of the additional flows so far have been outbound - ships leaving the Strait of Hormuz - while a broader return of inbound shipments depends on a restoration of shipping confidence. That restoration, he wrote, requires safety assurances and mine clearance so insurance premiums can normalize. Without such assurances, insurers and shippers face higher premiums and operating constraints.
The alternative coastal routes around Oman and Iran, which have been used during the disruption, are capable of handling fewer vessels simultaneously than the traditional central route through the Strait. In addition, tankers that were diverted to other locations during the conflict generally need to discharge cargos before they can return to the Gulf - a logistical friction that limits the speed of a full production and shipment recovery. UBS cited a recent example in which Iraq briefly increased output over a weekend only to be forced to shut that additional flow down because empty ships were not available to take the product.
Looking ahead, UBS expects some of the price-negative forces to fade. The bank anticipates strategic reserve releases will slow after June, Chinese crude imports will recover from their recent trough, and financial investor positioning - which has become markedly leaner - will act as a tailwind for prices.
Reflecting these views, UBS now forecasts Brent at $85 a barrel at the end of September and again at the end of December, and at $80 a barrel at the end of March and the end of June 2027. These revised targets are lower than its prior projections of $105 and $95 for end-September and end-December, respectively.
Market context and implications
The report underscores how a sudden change in shipping dynamics and the release of floating and onshore inventories can quickly swing market sentiment and prices. UBS portrays the recent price decline as largely supply-driven and potentially reversible if the rebalancing of flows and slower-than-expected restoration of Gulf output reduce available downside over the medium term.
For oil market participants, the key variables to watch are the pace at which trapped barrels exit the Gulf, progress on mine clearance and other measures to restore insurer confidence, and whether strategic reserve sales indeed taper off after June.