There is no market like oil to make forecasters look foolish. On a regular basis, too. The year 2026 is a case in point.
It was only back in March that oil spiked to above US$100 ($144) a barrel and there was genuine concern in Australia of fuel shortages.
Everyone knows why. Iran blocked the Strait of Hormuz and cut off 20% of global energy supply. The pre-war flows haven’t recovered yet either. They are at about 50% of where they were, according to the Financial Times.
A few months later, investment bank Citigroup (NYSE:C), for one, is forecasting crude oil to go back to a possible US$60 a barrel by Christmas.
That would be a price lower than before the ‘greatest energy disruption in history’.
What is going on?
Well, the West has a lot to thank China for. Unlike Australia, China prudently built up a massive storage of oil for this exact eventuality.
When the Strait closed, Chinese energy firms stopped bidding on the available oil supply and started drawing down on the state reserve.
Then there were all the different responses to the disruption. Strategic reserves were released. Iranian and Russian oil under previous sanctions came back to market. Consumption dropped.
It all led to the fastest quarterly drop in crude since 2020. Brent oil finished down 38%. That’s an outcome no one predicted.
Can low oil be sustained?
There are plenty of people willing to say that the current price is some sort of temporary, inexplicable blip in the bull run as the market tries to make up the huge deficit since the Strait closed.
But, as always with oil, not everyone agrees. There are those that say there’s simply too much oil around for prices to go back up in a sustained way.
Whom to believe?
An energy insider probably has the best explanation. TotalEnergies (EPA:TTE) CEO Patrick Pouyanné is definitely one of them.
InvestingLive shared the following quote:
“Speaking at the Rencontres Économiques conference in Aix-en-Provence, Pouyanné said producers in the region [the Middle East] built up such large inventories during the conflict that they are now offering heavy discounts to move the oil, a dynamic he linked directly to the recent collapse in crude prices.”
Unfortunately, the benefit of this lower crude price is unlikely to flow back to consumers because refined products — jet fuel, diesel, gasoline — are tight. The margins are trading around records.
Oddly perhaps, the big winners from this current market are not oil producers, but refiners. They can source cheap crude and sell products at high margins.
Of course, any forecast of oil necessarily means taking an implied view of where the Iran-US conflict goes.
Any scenario or forecast that involves oil below US$80 a barrel is a bet on sustained peace that leads to normalised flows through the Strait of Hormuz and the return of full Middle Eastern supply.
There are no guarantees that will be the case. The Stars and Stripes website recently reported that the US still has a large naval presence in the region:
“In all, slightly less than half of the Navy’s battle force ships currently deployed and operating at sea worldwide are in the Middle East, according to USNI News data. That figure excludes ships on local operations.”
Only President Donald Trump and his military leadership can know what the US is planning. That means oil may yet hold another major surprise in 2026.
Write to Callum Newman at Mining.com.au
Images: Unsplash
