Fitch Ratings has warned that its base case Brent crude oil price assumption of $87 per barrel for 2026 faces growing downside risks, despite the forecast already incorporating a significant geopolitical premium linked to renewed hostilities in the Middle East and the possibility of a short-term escalation. The rating agency said several factors are increasing the risk that oil prices could fall below its existing assumptions. These include the additional supply that moved through the Strait of Hormuz during its temporary reopening in June, relatively comfortable global oil inventories, the potential for a rapid recovery in Middle Eastern production once hostilities ease and Fitch’s expectation that the global oil market will return to an oversupply position from September.
Fitch’s original base case assumed Brent would average $110 per barrel in June and $100 per barrel in July. Actual prices, however, averaged around $84 per barrel in both months, significantly below the agency’s assumptions. Brent is currently trading at around $79 per barrel, while Fitch’s forecast of $70 per barrel for the fourth quarter of 2026 still includes what it considers to be a substantial geopolitical premium.
The temporary reopening of the Strait of Hormuz in June proved more significant for the physical oil market than Fitch had initially anticipated. Shipments through the strategic waterway reached 8.2 million barrels per day in June, extending the market’s ability to absorb a potential disruption from five months to seven months. Fitch now estimates that the available cushion could extend through the end of September.
The agency noted that the June shipments represented more than half of the oil released under the International Energy Agency’s reserve programme, suggesting that physical oil supplies remain relatively well balanced despite the geopolitical risks surrounding the region.
Fitch’s previous base case had assumed that the Strait of Hormuz would remain fully closed through the end of July, while allowing for the possibility of renewed flare-ups. Hostilities did resume in July following the short reopening in June. Fitch now expects that an agreement to fully reopen the strait could emerge in August, although sporadic and potentially brief disruptions to transit could continue through the remainder of the year.
The agency continues to anticipate a rapid recovery in oil supplies once the Strait of Hormuz is reopened. Fitch pointed to the sharp decline in oil prices following the June reopening as evidence of how quickly the market can respond when physical supply constraints ease.
Before the latest escalation, production across major Middle Eastern producers had already been recovering. Saudi Arabia’s output had returned to more than 70% of its pre-war level, while the United Arab Emirates had reached 100% of its pre-war production. Overall OPEC+ production had recovered to more than 80% of previous levels.
Oil flows through the Strait of Hormuz averaged approximately 75% of pre-war levels by the end of June, while Brent prices fell to around $71 per barrel by early July.
Fitch also assessed the risks surrounding oil transportation through the Red Sea. It said the principal impact of disruptions in the region falls on Saudi exports, but Saudi Arabia has alternative routes available through the Suez Canal and the SUMED pipeline. These routes can help bypass the Bab el-Mandeb Strait, which remains exposed to security threats. Combined flows through the Suez Canal and SUMED pipeline are around 5 million barrels per day, broadly comparable with the volume Fitch assumes Saudi Arabia can export through its East-West pipeline, which bypasses the Strait of Hormuz.
Looking beyond the immediate geopolitical situation, Fitch maintained its expectation that the global oil market will return to oversupply from September. The forecast is based on a rapid recovery in Middle Eastern production and exports, OPEC’s shift toward a volume-driven strategy and continued strong production from non-OPEC countries. Under this scenario, Brent is expected to decline toward $70 per barrel during the fourth quarter of 2026.
Global oil inventories are another factor behind Fitch’s downside assessment. The agency said observed global oil stocks stood at around 8.2 billion barrels in early 2026. Inventories subsequently declined in line with the announced 400 million-barrel reserve release, but remained broadly consistent with levels recorded between 2021 and 2024.
Once the reserve release is completed, Fitch expects global inventories to settle at approximately 7.8 billion barrels, equivalent to around 75 days of global consumption. Countries participating in the International Energy Agency have released 276 million barrels so far. Global observed stocks increased by 21 million barrels to 7.9 billion barrels in June, although Chinese inventories declined by 41 million barrels between May and June after rising from March through May.
Fitch also said demand destruction during the second quarter of 2026 was broadly in line with its expectations at approximately 5 million barrels per day. The decline in demand helped offset the supply disruption caused by the closure of the Strait of Hormuz, which effectively removed around 15 million barrels per day of crude supply from the market.
Demand destruction was concentrated primarily in Asia and the petrochemical sector. Petrochemical feedstocks accounted for almost half of the overall decline, while Asia represented nearly two-thirds of the reduction. China alone recorded a decline of approximately 1.5 million barrels per day in the second quarter, making it the largest individual contributor to the global demand reduction.
Taken together, stronger-than-expected supply availability, elevated inventories, recovering Middle Eastern production and weaker demand have increased the downside risks surrounding Fitch’s $87 per barrel average Brent forecast for 2026. The agency nevertheless continues to factor geopolitical risks into its outlook, with the future trajectory of oil prices remaining closely linked to developments around regional production and the movement of crude through key shipping routes.
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