WTI may hit $57 on US-Iran deal; escalation to spark 15% rally: Analyst

Global crude oil prices retreat to two weeks lows on Wednesday, WTI $62.35 falling 2.5 per cent in the last five trading sessions as the US-Iran said to have reached a "general agreement" on a nuclear deal. Geopolitical developments have kept crude oil markets highly volatile this year, with prices rising over 13 per cent in January amid heightened concerns of a potential US–Iran conflict. 

 

Although both countries have since entered diplomatic negotiations, tensions remain elevated. The US has strengthened its military presence across the Middle East to increase pressure on Iran, while Iran continues to assert its stance on retaining the right to pursue nuclear capabilities.

Has US shale production reached its peak?

US shale output appears to have entered a plateau after climbing to a record 13.8 mbpd in late 2025. The Permian Basin—responsible for roughly half of total shale production—reached its effective capacity limit of 6.8 mbpd by November 2025, signalling that the era of easy gains may be over.

 

Going forward, incremental production growth is expected to moderate. Most of the readily accessible reserves accumulated over the past decade have already been extracted, and the next phase of development requires deeper, more capital-intensive drilling. With average breakeven costs ranging between $50 and $55 per barrel depending on geology and investment requirements, the economics of further expansion are becoming increasingly challenging.

 

This shift in the U.S. production profile could provide a structural floor for crude prices, supporting market stability even if it does not trigger a significant rally.

Opec+ holding the cards

Opec+ continues to act as a key stabilising force in the global oil market. With member economies heavily reliant on petroleum revenues, the alliance is prioritizing market balance over additional production growth. The group has elected to pause output increases through the first quarter of 2026, aiming to keep Brent prices anchored near the preferred level of around $70 per barrel. This approach is intended to support market confidence while avoiding excess supply.

 

Following the US assertion of control over Venezuela’s oil sector, Opec+ is increasingly focused on preventing further geopolitical setbacks. A loss of Iran’s independence would represent a significant strategic blow, given the bloc’s collective control of roughly 40 per cent of global crude output and its continued role as a key price-setter. In response, several Middle Eastern nations have adopted firm diplomatic positions, signalling reluctance to support or enable military action against Iran.

 

On the demand side, Opec remains optimistic, projecting global growth of 1.4 mbpd in 2026, led primarily by Asia. In contrast, the EIA forecasts demand growth of 1.2 mbpd, while the IEA maintains a more conservative estimate of 0.85 mbpd—creating a divergence of approximately 0.6 mbpd across major agencies.

 

Supply projections show similar variability. Opec anticipates an increase of 0.8 mbpd in 2026, with non-OPEC producers contributing an additional 0.6 mbpd. The EIA projects total supply growth of 1.6 mbpd year-on-year, while the IEA estimates a more substantial 2.6 mbpd increase, bringing global supply to an expected 108.6 mbpd in 2026.

Outlook

Crude oil prices are expected to ease gradually, supported by encouraging signals from the ongoing US–Iran discussions in Geneva. A follow-up meeting scheduled in two weeks points to a modest reduction in geopolitical tensions. However, the continued deployment of US military assets around Iran, alongside Iran’s sustained naval exercises, is keeping a geopolitical risk premium embedded in the market. These factors are likely to limit downside momentum and reduce the likelihood of sharp corrections in the near term.

 

While diplomatic engagement has lowered the immediate risk of conflict, regional uncertainties remain elevated ahead of the next negotiation round. As a result, WTI is expected to trade within a narrow $60–$63 range. A meaningful diplomatic breakthrough could guide prices toward $57, whereas any escalation may prompt a 10–15 per cent upside move.    ==============  Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.