Oil market may re-enter surplus zone; Brent could slide up to $66/bbl

Brent to trade within $70-$76/bbl range over the next quarter, with downside risks extending toward $66-$68/bbl should Iranian supply recover faster than anticipated.

Oil recedes as US-Iran sign peace deal  Oil markets have already priced much of the peace premium. ICE Brent futures were trading at around $77/bbl. at time of writing, $45/bbl. below an early April peak but still about $15/bbl higher than at the start of the year.  Losses in crude oil accelerated on Monday after the US authorized a temporary, 60-day license allowing Iran to sell crude oil and petroleum products through August 21. Flows are recovering shipments through the Strait were already rising sharply in early June, lifting total flows from a May low of 9.6 mb/d to around 12 mb/d.  However, a full recovery will not be immediate, as mines will have to be removed from the main shipping lanes and supply chains will take time to normalise.  However, the deal is fragile. Significant uncertainty remains regarding implementation, particularly concerning sanctions relief, the future of Iran's nuclear program, and freedom of navigation through the Strait. Regional actors including Israel and several Gulf states have expressed concerns that unresolved provisions could enhance Iran's strategic leverage while leaving core security issues unsettled.  Ukraine hits Russian oil refineries  Ukraine has escalated into a systematic campaign targeting Russian refining infrastructure, providing around 40 per cent of its petrol and other oil products.  Ukraine struck the Moscow oil refinery twice in one week and Russia's average refinery capacity has dropped to 4.69 million barrels per day, the lowest level since December 2009.  Nearly all major oil refineries in central Russia have been forced to either shut down or cut fuel production after a series of Ukrainian drone attacks. The refineries affected have a combined processing capacity of more than 83 million metric tons per year roughly one-quarter of Russia's total oil refining capacity and together produce more than 30% of Russia's gasoline and about 25% of its diesel fuel.  OPEC / EIA / IEA — JUNE 2026 DEMAND & SUPPLY GUIDANCE  The three agencies now present a historic divergence in their 2026 outlooks, although we may expect at sharp revision into the outlook in next months report due to sharp correction in oil prices that would see resumption of demand.  As per their latest report- The IEA forecasts global demand to decline 1.1 mb/d year-on-year in 2026 — a downgrade of 700 kb/d compared to the May report — as 2Q26 deliveries plunged 5 mb/d year-on-year in the face of higher fuel prices and disruptions to product availability.  The EIA, in its June STEO, similarly forecasts global oil demand to decrease by 1.1 mb/d in 2026, compared to the 104.0 mb/d recorded in 2025 and a dramatic reversal from its February forecast of 1.2 mb/d growth  OPEC reduced its 2026 global oil demand growth estimate to approximately 970,000 bpd, down from a prior projection of 1.17 mb/d, citing the economic impact of the Iran conflict and disruption to Middle Eastern oil supply routes.  However, OPEC characterises this as a temporary rather than structural reduction, raising its 2027 growth forecast to 1.73 mb/d on expectations that deferred consumption will re-enter the market. OPEC's May crude production fell by -3.36 million bpd to a 40-year low of 16.33 million bpd.  Global OECD Inventories at critical Juncture: OECD inventories are forecast to fall to just under 2.3 billion barrels by December 2026, which would be the lowest level since 2003 and well below the previous five-year average of 2.8 billion barrels. Oil will remain supportive of the replenishment demand from the OECD nations in coming quarter.  Outlook  We believe the oil market is increasingly at risk of moving back into a surplus environment by end-2026. Supply growth is expected to accelerate as OPEC+ producers continue restoring output, while GCC exporters compete to regain market share lost during recent geopolitical disruptions, potentially through more aggressive Official Selling Price (OSP) adjustments.  In addition, any sustained increase in Iranian exports would add further barrels to an already well-supplied market, keeping global availability ample in the coming quarters.  We maintain a decisively bearish near-term view on crude oil. Market pricing has largely shifted from geopolitical risk concerns to underlying supply-demand fundamentals, which are becoming increasingly negative. Rising production from OPEC+, GCC nations and non-OPEC suppliers is expected to outpace demand growth, supporting a gradual inventory rebuild.  On a 3–6 month horizon, market balances remain consistent with a surplus scenario. We expect Brent to trade within the US$70–76/bbl range over the next quarter, with downside risks extending toward US$66–68/bbl should Iranian supply recover faster than anticipated or OPEC+ production discipline weaken further. Every rally should continue to be viewed as a selling opportunity.  (Disclaimer: This article is by  Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)