Prospects for growth in crude oil production are bullish for 2027, even as supplies remain constrained in the short term due to the Iran war, analysts said.
“While supply will remain heavily constrained in the short term, we have grown more bullish on prospects for growth in 2027. This is the result of three key factors,” said research agency BMI, a unit of Fitch Solutions.
The first reason is favourable base effects from 2026, due to the growing cumulative loss of supply (currently above 600 million barrels for crude, rising comfortably above one billion barrels should the conflict extend to June).
13 mdb supply cut
The second is restocking requirements will be higher, opening the door on a full unwinding of the OPEC-plus production cut deal over H2 2026 and 2027, including both the 1.65 million barrels a day (mbd) and 2.2 million mbd tranches of cuts.
The third will be the UAE’s exit from the OPEC group, allowing it to bring more of its targeted 5 mbd capacity into play over the coming years, it said.
ING Think, the economic and financial analysis wing of Dutch multinational financial services firm, said some 13 mbd of crude oil supply has been disrupted. But it has been offset by inventories, which are declining rapidly.
“This leaves the market more vulnerable with each passing day. Tighter stocks will only leave the oil market trading in an ever more volatile manner,” it said.
Depleting inventories
According to the American Petroleum Institute (API), crude oil inventories fell by 8.1 million barrels over the last week. Gasoline and distillate stocks fell by 6.1 million barrels and 4.6 million barrels, respectively, per the US oil inventory numbers.
BMI said available stocks are being rapidly depleted, and a spillover of the conflict into the summer months could push inventories towards or below operational tolerances.
“In this scenario, market complacency could easily give way to panic, driving a sharp spike in Brent,” it said.
Physical supply shortages will increasingly destroy demand in smaller energy markets this month. But to balance the market in full, demand destruction would ultimately need to spread to larger consumers, requiring a significant adjustment in the price, it said.
US stocks comfortable
“These dynamics are the main factor for our forecast for Brent for 2027, which will be set at an average of $72.5 a barrel for Dated Brent and $72 for Brent futures, should the conflict extend into June,” the research agency said.
However, ING Think said US commercial crude oil inventories remain comfortable, at 459 million barrels, over 1 per cent above the seasonal 5-year average. “…this can change quickly, particularly if we continue to see record US crude oil exports,” it said.
BMI said a feature of this war has been the disconnect between financially-settled contracts (such as Brent futures) and physically-settled contracts (such as Dated Brent). “Averaging around $7/barrel in May, the spread between these contracts is far below the $35/barrel-plus highs seen earlier in the war. Nevertheless, the spread remains wide in historical terms, and this is likely due to a range of factors, including some technical idiosyncrasies of the market mechanics behind Brent,” it said.
Trump’s comments raise hopes
The research agency said that throughout the course of the conflict, US President Donald Trump has repeatedly sought to anchor expectations for conflict duration, successfully derailing several rallies in Brent.
Traders have reportedly struggled to manage the volatility associated with the US President’s social media comments, and this may in part explain why price action in the futures market has often seemed so disconnected from the scale of the ongoing disruptions to supply.
ING Think said Saudi Arabia has cut its official selling price (OSP) for its flagship Arab Light to Asia for June. The OSP was cut from a record $19.50 a barrel premium over the benchmark in May to $15.50.