Spot Brent futures prices slipped below $80/bbl last week as the US and Iran reached an interim deal that would lift the US blockade and reopen the Strait of Hormuz. The interim deal reportedly includes a waiver for exports of Iranian oil and petrochemicals and for related financial and transportation services, potentially unlocking over 50mb of Iranian oil on water overhang for immediate delivery. We now assume that Persian Gulf exports normalize to pre-war levels by end of July and Persian Gulf crude production recover by October. We estimate that this normalization in Gulf exports to pre-war levels might be achieved with a 13mb/d increase in Hormuz flows from current levels to around 70% of pre-war levels. CENTCOM reported that 55 commercial vessels recently transited the waterway in a single day, carrying more than 17 million barrels of crude oil and cargo to global markets. That is far bigger than the 13 mb flow required through SoH to reach prewar levels. We also do not see ship availability as a binding constraint on the recovery of flows as we estimate 860mb of empty tanker capacity within the Strait or within 5 days of navigation. What is more revealing is the IEA recent report for CY27 demand supply estimates. As per IEA, 2027 balances show a significant overhang emerging next year. Global oil demand is projected to rise by a relatively modest 2 mb/d to 105.3 mb/d. By contrast, oil supplies look set to surge by around 8 mb/d to 110 mb/d. That is a deficit of 5 mbpd for most of CY27. While the recent resumption of crude flow through SoH might be utilised to fill in the inventory drawdowns of 360 mbs globally (4mbpd for 3 months), we expect the gulf supplies to pick up sharply and fill in the inventories and SPRs by end CY26. This implies a price range of 75-90 for REMCY26. What is more interesting is CY27 where we see global supplies far outstripping the global demand by minimum 5 mbpd as alternate supply routes continue along with increase in production from non-OPEC countries such as UAE, Brazil, Canada. Hence, we see Brent falling gradually to 50 levels by H1CY27 and possibly sub 50 too in H2CY27. Above estimates factor in a permanent US Iran deal after the 60 days expiry period of the current MoU.
