LONDON/HOUSTON/SINGAPORE, June 23: The oil price bubble has burst. Wood Mackenzie forecasts Brent averaging $78 a barrel in 2027 and potentially easing to $70/bbl by Q4 2027, following a US-Iran Memorandum of Understanding that has shifted market sentiment away from a prolonged Strait of Hormuz closure.
The pressure to reach an agreement was acute. On 15 June, President Donald Trump acknowledged that US reserves would run out “in about four weeks.” Inventories at the Cushing hub had fallen close to the operational floor. Those fundamentals, as much as diplomacy, brought both sides to the table.
The Memorandum of Understanding, signed last week, gives both parties 60 days to negotiate a comprehensive agreement. Both have accepted in principle that the Strait should be reopened. But the gap between acceptance and execution remains wide. Israel’s apparent rejection of restrictions on its ongoing military action in Lebanon adds further uncertainty. Negotiations may need to be extended. They could fail.
Brent averaged $92/bbl over the first half of 2026, buoyed by the elevated prices of March through May. Investor sentiment moved faster than the oil itself. In the four weeks to 16 June, positioning for higher Brent prices fell by around 80% from a five-year high. Wood Mackenzie’s vessel tracking data shows ships of all categories transiting the Strait reached a peak of 35 on 18 June, up from the low teens per day — but still well short of pre-war levels.
The revised forecasts of $78/bbl in 2027, and a potential $70/bbl by Q4 2027, assume Strait transit flows normalise during August. Alternating periods of elevated and depressed prices are likely as demand recovery, inventory rebuilding, and production ramp-up remain out of sync. Recovery will take months. The supply shock removed more than 11 million barrels per day of crude from global markets. Wood Mackenzie projects 70% of shut-in volumes could return within three months of the Strait reopening, and 90% within six months. The final one million barrels per day will take considerably longer.
Refining margins tell the same story: better but not recovered. Jet crack spreads remain at almost double pre-war levels despite easing progressively over the past two months.
“A prolonged closure would have pushed Brent well above $150 a barrel,” adds Alan Gelder, Senior Vice President, Macro Oils, Wood Mackenzie. “The MoU changed that trajectory. But the full value chain, from wellhead through to Gulf Cooperation Council ports, will take the better part of a year to fully recover. Jet crack spreads running at almost double pre-war levels are the clearest signal that this market has not yet normalised. Getting the barrels back is a different challenge from reaching a deal.”
