Fitch sees downside risks to its $87/barrel Brent forecast for 2026

August 08, 2026 (MLN): Fitch Ratings says its base-case Brent oil price assumption of $87 a barrel on average for 2026 faces growing downside risk, even though the forecast already builds in a substantial geopolitical premium for renewed Middle East hostilities, including the possibility of a short-term hot war.

The rating agency attributed the downside risk to a material cushion built into its price assumption, additional supply shipped during June's temporary reopening of the Strait of Hormuz, comfortable global inventories, an expected rapid recovery in Middle East supply once hostilities ease, and a forecast return to global oversupply from September.

Fitch's base case had assumed Brent would average $110/barrel in June and $100/barrel in July, well above the actual outturns of about $84/barrel in both months.

The current price stands at $79/barrel, while the agency's 4Q26 forecast of $70/barrel still carries a significant premium, it said.

The temporary reopening of Hormuz in June proved more consequential than expected, according to Fitch.

June shipments through the strait of 8.2 mmbpd were enough to extend the market's ability to absorb a Hormuz disruption to seven months, from five months previously assumed, pushing that cushion out to end-September.

Fitch said these volumes equated to more than 50% of the IEA's oil reserve release, an indication that the physical oil market remains well supplied and balanced.

The agency's base case had assumed a full closure of the strait through end-July, without ruling out flare-ups, and hostilities did resume in July following the brief June reopening.

Fitch said some agreement to fully reopen Hormuz may emerge in August, though sporadic, likely brief flare-ups disrupting transit are expected to persist through the rest of the year.

Fitch said it continues to expect a rapid supply recovery once Hormuz reopens, as was seen in June, with prices already falling sharply.

Before the latest re-escalation, Middle Eastern production had been recovering quickly, with Saudi Arabia back above 70% of pre-war output, the UAE at 100% and OPEC+ above 80%.

Hormuz oil flows averaged 75% of pre-war levels at end-June, and Brent fell to $71/barrel by early July.

On the Red Sea threat, Fitch said the main impact falls on Saudi exports, but Saudi Arabia can reroute flows via the Suez Canal and the SUMED pipeline to bypass the Houthi-threatened Bab el-Mandeb Strait.

Flows through these two routes are broadly comparable at about 5 mmbpd, in line with the volume Fitch assumes for Saudi exports via the East-West pipeline that bypasses Hormuz.

The agency reiterated its forecast for a return to global oversupply from September, citing a quick recovery in Middle Eastern production and exports, OPEC's pivot to a volume-driven strategy, and strong non-OPEC supply, with Brent seen dropping to $70/barrel in 4Q26.

On inventories, It said global observed oil stocks stood at a high 8.2 billion barrels in early 2026, declining in line with an announced 400 million-barrel reserve release but remaining consistent with 2021-2024 norms.

Once the reserve release is complete, stocks are expected to settle at about 7.8 billion barrels, equivalent to roughly 75 days of global consumption.

IEA member countries have released 276 million barrels so far. Global observed stocks rose by 21 million barrels to 7.9 billion barrels in June, though Chinese stocks fell by 41 million barrels from May to June, following increases over March-May.

Fitch said demand destruction matched its expectations at about 5 mmbpd in 2Q26, helping balance the market after the Hormuz closure effectively removed 15 mmbpd of crude from supply.

As anticipated, demand destruction was concentrated in Asia and in petrochemicals, with petrochemical feedstocks accounting for almost half the decline and Asia for nearly two-thirds of it. China alone recorded a 1.5 mmbpd drop in 2Q26, the largest decline globally.

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