Westpac has revised down its Brent oil forecasts after shipping activity through the Strait of Hormuz recovered more quickly than anticipated following the US-Iran memorandum of understanding signed in June.
The bank now expects Brent to average $83 per barrel in the September quarter, $4 below its previous estimate, before rising to an average of $85 in the December quarter.
Westpac said the reopening of the Strait of Hormuz allowed vessels that had been stranded in the waterway to exit rapidly. At the same time, oil exports from Saudi Arabia and the UAE returned to normal without the major production disruptions markets had feared.
According to the bank, supply recovered slightly faster than expected, allowing Brent prices to erase almost the entire war-related premium accumulated during the conflict.
Still, Westpac warned that geopolitical risks remain elevated. The bank described the US-Iran agreement as an “uneasy truce”, noting that fresh tensions over the past week briefly drove Brent back toward $80 per barrel.
Over the longer term, Westpac expects traditional supply and demand factors to once again become the main drivers of the oil market. The bank pointed to historically low OECD inventories, the possible replenishment of government strategic reserves and a recovery in Chinese refinery demand as key sources of support.
Although Brent is likely to remain below the highs seen during the conflict, Westpac expects continued volatility as markets weigh improving physical supply against the risk of renewed disruptions in the Middle East.
Conclusion:
Brent’s decline shows that traders are removing much of the geopolitical premium as physical supply normalizes. However, low inventories and ongoing Middle East risks could keep prices volatile and provide support during renewed supply concerns.
