OCBC Global Markets Research has raised its end-2026 Brent crude oil forecast to US$80 per barrel from US$75, citing a slower-than-expected recovery in Middle Eastern supply as negotiations between the US and Iran over reopening the Strait of Hormuz remain stalled.
While the global oil market has proven more resilient than expected more than five months into the Middle East conflict, OCBC said this resilience has increasingly relied on alternative export routes, “dark” shipping and continued inventory drawdowns.
The more pressing problem is now shifting away from crude oil itself towards refined fuels, particularly diesel, where tight inventories and surging refining margins suggest that refining capacity is emerging as the key constraint in the global energy market.
“The immediate supply problem is no longer crude oil. It is diesel,” OCBC Commodity Strategist Sim Moh Siong said.
Brent Climbs Above US$90
Brent crude has climbed above US$90 per barrel amid another escalation in regional tensions, including renewed exchanges of strikes between the US and Iran for the first time in about a month and fresh concerns over shipping security through the Strait of Hormuz.
OCBC said Iran and Oman have reportedly reached a preliminary agreement on a commercial shipping corridor through the strait, suggesting Tehran is preparing for the restoration of maritime traffic.
However, any meaningful reopening would still depend on an easing of the US blockade, leaving uncertainty over the pace at which Middle Eastern oil supply can normalise.
This prompted OCBC to lift its year-end Brent forecast by US$5 to US$80 per barrel.
Oil Market Finds Ways Around Disruptions
Despite the conflict, global crude supplies have held up better than initially feared as Gulf producers found alternative ways to move their oil.
Saudi Arabia, for instance, has redirected exports from Yanbu through Egypt’s SUMED pipeline to bypass the Bab al-Mandeb Strait following Houthi attacks.
The market has also seen greater use of so-called “dark” shipping, where tankers deactivate their Automatic Identification System transponders while travelling through the Strait of Hormuz.
These measures have helped keep crude exports flowing and prevented the disruption from developing into an outright global oil shortage.
However, OCBC warned that the adaptation has come at a growing cost.
Inventories are being depleted, freight rates are rising and pressure is increasingly shifting downstream into refined petroleum products.
Global Oil Buffers Shrinking
Global supply buffers are also becoming increasingly thin.
OCBC said oil inventories are near multi-year lows and continuing to decline, reducing the market’s ability to absorb further supply disruptions.
Drawdowns from the US Strategic Petroleum Reserve have slowed as inventories approach operational minimum levels, leaving strategic stocks near historical lows.
China remains another important swing factor.
Weak Chinese oil imports have helped alleviate pressure on the global market, but falling domestic inventories and seasonal demand could limit China’s ability to maintain subdued import levels.
Any recovery in Chinese buying could therefore add further pressure to an already tight global supply balance.
Diesel Crack Spreads Approach US$100
OCBC said the clearest indication of stress is now appearing in the refined products market.
US diesel crack spreads have surged towards US$100 per barrel, highlighting acute tightness in middle-distillate supplies.
Refineries in both the US and China are already operating at high utilisation rates, yet diesel inventories remain lean, while strategic reserves continue to play an important role in supporting available supply.
The situation suggests that simply having sufficient crude oil available may no longer be enough to ease market pressure if refiners cannot produce enough diesel and other middle distillates to meet demand.
As a result, OCBC sees refining capacity rather than crude availability as the emerging bottleneck for the oil market.
Although global markets have so far managed to absorb the Middle East supply shock, the research house cautioned that this resilience has depended heavily on running down existing buffers.
With inventories continuing to fall and diesel markets showing increasingly severe signs of tightness, further disruptions to refining or shipping could leave global fuel markets more vulnerable even if outright crude shortages continue to be avoided.
