UBS has revised down its oil price projections for 2026 and 2027 following a more rapid recovery in flows through the Strait of Hormuz after an interim U.S.-Iran memorandum of understanding (MoU) signed on June 17.
In its updated outlook, the bank now sees Brent averaging $84 a barrel in 2026, a reduction of $9 from its prior forecast, and $75 a barrel in 2027, a $10 cut. Forecasts for West Texas Intermediate were also lowered to $79 a barrel for 2026 and $71 a barrel for 2027.
UBS analysts, led by Henri Patricot, attributed the revision to a decline in geopolitical risk and a prompt rebound in flows, noting: "Lower geopolitical risk and quick rebound in flows have led to a steeper price decline than we had expected," in a Wednesday note.
The bank still expects Brent to recover modestly in the second half of 2026, averaging $80 a barrel, but that figure is down from prior quarter-specific estimates that anticipated $105 for the third quarter and $90 for the fourth quarter. UBS cited normalization of floating storage in the Gulf and a pick-up in demand as factors behind the anticipated partial rebound.
UBS left its long-term price assumption unchanged, maintaining a $75 a barrel assumption from 2028 onward.
Operational recovery and flows
Since the MoU was announced, oil transits through the Strait of Hormuz have recovered to around 50% of pre-conflict levels, the bank reported. Iranian crude exports have also regained some momentum as a U.S. blockade eases, according to UBS' assessment.
Regional flows have been uneven. The United Arab Emirates' exports have returned to nearly 85% of pre-conflict levels, helped by bypass routes. Saudi exports remain about 25% below pre-conflict levels, though UBS noted June volumes rose roughly 10% from May.
Inventories and market balances
UBS lowered its estimate for the 2027 inventory rebuild to around 1 billion barrels, down from roughly 1.5 billion barrels in its earlier view. The adjustment reflects the bank's revised expectation of a faster-than-anticipated supply recovery, which reduces the projected cumulative stock deficit that had previously underpinned higher prices.
On a quarterly basis the bank's supply-demand balances indicate the market remains in deficit through the third quarter of 2026. UBS forecasts a shift into surplus of 2.9 million barrels a day in the fourth quarter of 2026, with that surplus widening to 3.8 million barrels a day in 2027.
Demand-side considerations
UBS highlighted China's role as a swing buyer, pointing to a sharp drop in the country's crude imports to 6 million barrels a day in June, substantially below the more typical 10-11 million barrel range. The bank presented this as a factor that could influence the pace and scale of any price recovery.
Range of risks and scenarios
The analysts cautioned that risks to the outlook remain two-sided. On the upside, a breakdown of the MoU could push prices back toward $100 a barrel. UBS warned a more disruptive escalation - including targeting of major oil infrastructure and conflict extending beyond summer - could produce a spike to $120 a barrel or more.
On the downside, a faster ramp-up in flows together with increased production from the UAE and Iran "could send Brent back below $70/bbl," the bank said. UBS added that a scenario combining faster Gulf flows with a stronger-than-expected recovery in Venezuelan output could drive Brent to $60 a barrel or below.
Implications for markets
UBS' revisions reflect a near-term rebalancing driven by supply normalization in the Gulf and softer Chinese imports, with inventory and balance-sheet adjustments further tempering forward prices. The bank's view underscores the sensitivity of prices to geopolitical developments in the Strait of Hormuz and to production responses across key producing countries.
Given the range of outcomes UBS laid out, market participants remain exposed to swings in energy markets if the MoU's effects change, if regional production ramps accelerate, or if demand patterns shift.