Chart of the Week: Our take on the oil price shock amid US-Iran conflict
Commodity prices inflect sharply as international tensions flare, but our long-term view remains unchanged.
This week’s Chart of the Week comes from our Equity Research team’s Q1 2026 Industry Pulse for Oil & Gas.
The recent conflict in the Middle East has spiked Brent crude oil prices causing severe volatility in global energy markets.
How we see long-term oil prices unfold
We suspect the market underappreciates the risk of a prolonged conflict; daily new flow translates to an incrementally bleaker outlook for near-term fundamentals. Still, so far, US kinetic strikes have largely omitted vital energy infrastructure.
Apart from a possible, but unlikely severe or tail scenario like the destruction of Iran’s Kharg Island terminal, we think prices revert to our long-term midcycle once the US pivots to the tough task of securing the Strait of Hormuz. Even so, shipping fears and higher insurance premiums could last awhile.
Geopolitical premiums eventually fade, but current pricing also reflects a tough logistical bottleneck. On a probability-adjusted basis, we think Brent could test $120/bbl in the next 30 days or so as 16 mmb/d are physically stranded behind Iran’s minefield. A structural supply deficit in 12 months is remote, so long-term midcycle oil price reversion is probable. Long term oil prices should likely revert to $65 Brent midcycle.
Global superpower reserves
The US portion of the co-ordinated IEA* release totaled 43% of the 400 million barrels released. While the US could consider another release to rein in oil prices following a historic supply disruption, its reserves have now been depleted to a historic low of just over 400 million barrels. That’s because the prior US administration authorised a release following the Russian invasion of Ukraine when there was no active supply disruption.
Of the recent US release, 60% comes from sour oil, which carries more trading risk as it’s a less-liquid market.
What about Venezuela?
On Jan. 3, 2026, the US ousted then-Venezuelan President Nicolas Maduro from power. The US administration has touted the private investment opportunity’s benefits to the US, as the country’s vast oil reserves are considered the largest in the world.
Regime change has rarely led to rapid supply increases. US Gulf Coast refineries are configured for Venezuelan heavy crude but it will take time to reach maximum capacity with some facilities requiring adjustments.
While both Venezuelan and Iranian crude are heavy (less dense) and sour (more sulfur), Venezuelan is much thicker, even tar-like. Even if Venezuela could return to its historic crude production of 3 mmb/d, it’s not enough to absorb the Middle East supply shock.
*China classifies all crude inventories as a state secret. These figures are estimates based on imports, domestic production, and refinery throughput. IEA means International Energy Agency*
