Wall Street majors reduce oil price forecasts on Iran deal to reopen Strait of Hormuz

Wall Street's largest banks are reducing their oil-price forecasts for the upcoming quarters as optimism rises over a revival of West Asia crude output post an interim deal to reopen the crucial waterway Strait of Hormuz.

Goldman Sachs Group Inc and Morgan Stanley have announced lower guidance for crude oil rates in the final quarter of this year. They cited sooner-than-expected resumption of flows from the Persian Gulf.

Goldman expects a full recovery as early as the end of next month.

The bank sees Brent at $80 per barrel in the final quarter, compared with a previous forecast of $90, it said in a note. Morgan Stanley sees Dated Brent, a benchmark for physical markets, averaging $90 a barrel in the third quarter, down from a previous prediction of $100, and $80 in the final three months.

“Much is still to be negotiated and key risks remain, but for now, this is a key step towards a de-escalation of the conflict and higher oil exports via the Strait of Hormuz,” Morgan Stanley analysts including Martijn Rats said in a note, citing the interim deal between the US and Iran.

The two countries are expected to meet in Switzerland on Friday to formally sign the agreement, the details of which haven’t been released. Oil prices have slumped to the lowest since early March following the announcement of the deal, although traders, shipowners and producers are still seeking clarity. Goldman, however is counting on a speedy resumption of flows.

“While full details on the agreement are unclear, we now assume that Persian Gulf exports normalize to pre-war levels by the end of July,” the bank’s analysts including Daan Struyven said in the note, referring to the interim deal between the US.

Tanker flows will likely take “several weeks” to be restored as mines are cleared, commercial confidence is rebuilt among shipowners and insurers, and vessels that had been relocated return to the region, according to Morgan Stanley.

“Also, for production to be restored, export tanks need to be cleared first, which means that the pace at which empty tankers enter the Gulf is arguably even more important than laden tankers leaving,” the bank’s analysts said. “We assume that 50% of lost production will be back by September, 80% by December, with the rest to follow in early 2027,” they added.

With inputs from Bloomberg