Brent crude falls below $80 for the first time in three months! US-Iran agreement impact, Goldman Sachs and Morgan Stanley both lower target prices
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The US and Iran have reached a temporary agreement to reopen the Strait of Hormuz, causing intense turmoil in the global oil market. Major Wall Street banks have lowered their oil price forecasts, and Brent crude oil prices have dropped to a three-month low.
Brent crude oil saw its biggest drop on Tuesday, plunging up to 4% and falling below $80 per barrel during trading—the longest continuous decline this year. Trump stated that the Strait of Hormuz would reopen this Friday; both parties are expected to sign a memorandum of temporary agreement in Switzerland, though the full text of the agreement has not yet been released.
Goldman Sachs and Morgan Stanley have both lowered their oil price forecasts for the coming quarters. The benchmark prices for Middle Eastern Dubai crude and Murban crude have simultaneously shifted to bearish futures premium structures, indicating the market expects oversupply.
This round of oil price declines has pulled Brent crude back to its lowest level since early March, erasing all gains made during the conflict. As the US Federal Reserve reviews interest rate directions this week, it also helps ease inflation pressure. However, there remain many uncertainties concerning the implementation details of the agreement, such as shipping safety, transit rules, and whether this crucial chokepoint—accounting for about one-fifth of global oil supply before the war—can maintain free passage, all still unresolved.
Goldman Sachs and Morgan Stanley Lower Oil Price Forecasts Together
Goldman Sachs and Morgan Stanley quickly revised their oil price outlooks following news of the agreement.
Goldman Sachs analysts Daan Struyven and others have lowered their forecast for Brent crude in the fourth quarter of 2026 to $80 per barrel, $10 below the previous estimate. The forecast for the average price in 2027 has been lowered from $80 to $75.
Meanwhile, Goldman has moved the timeline for restoring Persian Gulf exports to pre-war levels from the previously estimated end of August to the end of July. It also expects average WTI crude prices to be $75 per barrel in Q4 2026 and $70 per barrel in 2027.
Morgan Stanley analysts Martijn Rats and others wrote in their report: "There are still many details left to negotiate, key risks remain, but for now this is an important step toward de-escalation and increased oil exports from the Strait of Hormuz." Morgan Stanley estimates Persian Gulf production will recover 50% by September and 80% by December, a pace slightly faster than previous forecasts.
Agreement Details Unclear, Uncertainty Remains in the Market
Despite a clear shift in market sentiment, the specifics of how the agreement will be implemented are still unclear.
According to Bloomberg, Persian Gulf energy officials said they have received numerous buyer inquiries about whether crude oil can again be transported via the Strait of Hormuz. However, shipping executives and traders said they would need more clear information before dispatching vessels on that route. European allies are also skeptical that the flow of oil and liquefied natural gas can recover so quickly.
RBC Capital Markets takes a more cautious stance. Analysts Helima Croft and others noted in a report: "We believe it will take months to return to the levels seen on February 27 (prior to the outbreak of war). The peak flows of the Strait of Hormuz may actually be a thing of the past."
Unprecedented Supply Shock, Inventory at Historic Lows
Since the dual blockade of the Strait of Hormuz by the US and Iran, the global oil supply structure has come under immense pressure.
The US Strategic Petroleum Reserve has fallen to its lowest level since 1983. Goldman estimates Persian Gulf oil flows have risen from less than 30% of normal levels in early March to about 50% by mid-June.
Goldman also estimates that this Middle East supply shock reached as much as 14 million barrels per day, making it the largest single oil supply shock in history. However, given China’s significant demand flexibility, the actual supply gap in Q2 was about 5 million barrels per day, less than the shock size.
Goldman expects the global oil market to see a surplus of 3.2 million barrels per day in 2027, but believes Brent crude prices can still be maintained around $75 per barrel at that time, since, after the first half of 2026’s massive inventory drawdown, OECD commercial stocks are unlikely to rise to very high levels, and a certain degree of geopolitical safety premium will continue to support oil prices.
Both Upside and Downside Risks Exist, Goldman Tilts Toward Upside
Goldman outlined two extreme scenarios in its oil price forecast and believes overall risk remains tilted to the upside.
In the bullish scenario, if the Strait of Hormuz remains blocked until 2027, Brent crude could surpass $130 per barrel by the end of 2026, with an average of $105 per barrel in 2027. In the bearish scenario, if Persian Gulf exports resume normal levels as early as early July, coupled with persistently weak demand and higher than expected supply, Brent crude’s Q4 2026 average price could fall below $70 per barrel, and the 2027 average price could drop below $60 per barrel.
Additionally, Goldman pointed out that if Iran is granted sanction exemptions, its production could exceed pre-war levels, further increasing supply-side uncertainty. Abu Dhabi National Oil Company (Adnoc) has issued a third round of Persian Gulf crude tenders. The UAE’s ongoing expansion of exports confirms market expectations for supply recovery to some extent.
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