Oil Market: Excess Supply Concerns May Be Overblown

Oil Price Outlook for 2027: The Aftermath of Iran-US Conflict

Up to 75% of previously disrupted oil flows through the Strait of Hormuz are expected to return to the market by the end of this year, but significantly lower oil prices are not guaranteed for 2027 as US-Iran tensions are unlikely to be fully resolved in the near future.

According to Mr. Fereidun Fesharaki, Chairman Emeritus of FGE NexantECA, in an interview with CNBC on Monday, ongoing tensions between the United States and Iran will continue to be an unavoidable factor in the global energy market.

Background and Initial Forecasts

Prior to the conflict with Iran, consulting firm FGE NexantECA had forecast oil prices to fluctuate in a range of $50 to $60 per barrel for the following year. This scenario could still materialize by 2027, but it depends on the assumption that sustainable peace will be achieved.

However, Fesharaki personally believes that a sustainable peace agreement between the US and Iran is "unimaginable."

"There will be more conflicts, there will be more troubles, this is not the end of the story. This is just the beginning of the story," Fesharaki said.

The Strait of Hormuz Situation

The Strait of Hormuz is the world's most crucial oil shipping route, with approximately 20-30% of global oil being transported through it. The return of these routes to normalcy will have a significant impact on the global oil market.

In the short term, China is likely to continue as Iran's top oil customer regardless of Tehran's attempts to access other Asian oil buyers, according to this energy expert.

China is currently waiting for the right opportunity and has not yet returned to purchasing oil in large quantities from Iran or other countries, and this reluctance from China is "keeping the market hanging," Fesharaki told CNBC.

Oil Price Forecasts from Financial Institutions

Many other analysts expect traffic through the Strait of Hormuz to return to normal in the coming months and lead to a significant surplus next year, which would put downward pressure on oil prices.

For example, Citigroup forecasts Brent crude could fall to as low as $60 per barrel by the end of this year.

"We expect the Memorandum of Understanding (MOU) to be maintained and become a formal agreement in the coming months as downgrading engines surpass alternatives for the US, Iran, and most of the Middle East," Citigroup analysts said in a note last week.

Other Wall Street banks have also begun forecasting a surplus after the US and Iran signed the Memorandum of Understanding.

For instance, Morgan Stanley has cut its oil price forecast for the next 18 months as they expect the reopening of the Strait of Hormuz to accelerate a new supply surplus.

Comparison of Oil Price Forecasts from Various Sources

Factors Influencing the Oil Market

• US-Iran Political Tensions: Continue to be an unpredictable factor
• Straits of Hormuz Situation: Full reopening would significantly increase supply
• Chinese Demand: Cautious oil purchasing is affecting the market
• OPEC+ Policies: Production decisions continue to have significant impact
• Energy Transition: Long-term trend still moving toward clean energy

Conclusion and Outlook

The oil market is facing a critical transition period with the return of supply from the Strait of Hormuz. However, complex geopolitical factors, particularly US-Iran relations, continue to be unpredictable variables.

According to Fesharaki, although oil supplies may return to the market, the unstable geopolitical context will make it difficult for oil prices to fall sharply as some optimistic forecasts suggest.

The global energy industry, particularly technologies related to oil extraction, transportation, and processing, will need to adapt to a market with increased volatility but also new opportunities as critical trade routes return to normalcy.

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