Brent: Hormuz risk premium still fragile – OCBC

OCBC’s FX strategists Sim Moh Siong and Christopher Wong highlight that Brent Oil has dropped sharply on optimism over the reopening of the Strait of Hormuz after a US–Iran deal, but warn markets may be underpricing security risks. They keep their end-2026 Brent forecast at USD80/bbl and expects a gradual drift toward a low USD60 range in 2027–28, with near-term supply disruption risks slowing further declines.

Oil pressured but risk premium lingers

"The reopening of the Strait of Hormuz following the US-Iran deal triggered a sharp drop in oil prices. Brent has fallen more than USD30/bbl since early May and now trades below USD80/bbl."

"Markets appear to be pricing a smooth reopening. Any delay or partial implementation could quickly bring back the security risk premium. "

"We keep our end-2026 Brent forecast at USD80/bbl. Beyond that, we still expect a gradual move toward a low USD60 range in 2027–28."

"Near term, the risk of supply disruption should slow further decline in oil prices from here. Overnight, crude prices edged higher as doubts emerged over the durability of the US-Iran deal. "

"This followed a strike on a cargo ship in the Strait of Hormuz that caused significant damage to its bridge. The Wall Street Journal reported Iran may be responsible, though this remains unconfirmed. The incident underscores lingering fragility and raises fresh questions on how quickly oil flows can normalise."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)