Brent to stay elevated amid supply shocks; easing likely by Q3: Analyst

Since the outbreak of the US-Israel-Iran conflict on February 28, 2026, energy markets have driven sharp volatility across global assets. Brent crude surged to a peak near $127–130 per barrel in early March as supply disruptions escalated and tanker traffic through the Strait of Hormuz collapsed. Prices have since eased following an April 6 ceasefire announcement between the US and Iran, though negotiations remain fragile after talks in Pakistan broke down and Washington imposed a naval blockade.

 

Despite the pullback, the market continues to price in a substantial geopolitical premium. Brent futures are currently trading near $95/bbl after a 4.6 per cent correction, yet remain up 31 per cent since the start of the conflict, 56 per cent year-to-date, and roughly $18 higher year-on-year. OPEC supply losses exceeded 7.5 mb/d in March, while refining outages of around 2.4 mb/d have tightened product markets, particularly in Asia.

 

Monthly crude oil reports update

OPEC’s April Monthly Oil Market Report maintains 2026 global oil demand growth at 1.38–1.4 mb/d year-on-year but cut its Q2 forecast by 500,000 b/d. Non-OPEC liquids supply is still expected to grow 0.6 mb/d, though DoC (Declaration of Cooperation) crude demand stands at 42.9 mb/d. 

 

IEA Oil Market Report (April) is far more bearish, projecting an outright contraction in global oil demand of 80,000 b/d in 2026 — a 730,000 b/d downgrade from last month. Demand fell 800 kb/d year-on-year in March and 2.3 mb/d in April, with further destruction expected from high prices. Global supply dropped 10.1 mb/d to 97 mb/d in March. 

 

EIA Short-Term Energy Outlook (April) forecasts global demand growth averaging just 0.6 mb/d in 2026 (down from 1.2 mb/d previously). It estimates Gulf shut-ins at 7.5 mb/d in March, rising to 9.1 mb/d in April before easing later in the year, assuming the conflict does not extend beyond April. 

 

Supply Disruptions: Capacity Losses and Depletion Impacted war has exacted a heavy toll on upstream and downstream infrastructure. In March, OPEC crude oil production plummeted by 7.5–7.9 million barrels per day (mb/d) month-on-month to around 20.8–22 mb/d, the largest monthly decline in decades, exceeding losses during the 1970s oil crises. Key Gulf producers bore the brunt: Iraq (-2.5–3.0 mb/d), Saudi Arabia (-2.3–3.15 mb/d), the UAE (-1.27–1.44 mb/d), and Kuwait (-1.35 mb/d). Broader OPEC+ output (including non-OPEC participants) fell 9.4 mb/d to 42.4 mb/d.  This disruption resulted in a decline of global crude oil reserves of roughly 400 million barrels (based on an average 8–10 mb/d shut-in over 47 days). Relative to global proven reserves of approximately 1.73 trillion barrels, this represents a negligible direct depletion rate of about 0.02 per cent.

 

Damage to refining capacity: Downstream, refining capacity has also suffered. Approximately 2.4 mb/d of Gulf refining capacity was taken offline across 20 plants due to direct strikes and safety shutdowns. Feedstock shortages forced Asian refineries to slash runs by around 6 mb/d in April, bringing global crude runs down to 77.2 mb/d. The IEA projects global refining throughput to decline by a full 1 mb/d on average in 2026, to 82.9 mb/d. Recovery timelines vary: Iran aims to restore 70–80 per cent of its damaged refining and distribution facilities within 1–2 months, with partial operations at sites like Lavan Island resuming in days. Broader Gulf energy infrastructure — including wells, pipelines, and storage — could take several months to normalise, with some LNG facilities facing multi-year repairs (e.g., Qatar’s Ras Laffan complex potentially requiring up to five years for full restoration). Full recovery of pre-war flows hinges on reopening the Strait of Hormuz and clearing backlogs, which we believe could span 3–6 months even under optimistic ceasefire scenarios. 

 

Petrochemical shortages and broader impacts: The disruptions have tightened the supply of naphtha, LPG, and polymers, pushing plastics and polymer prices to four-year highs. Middle East and Asian chemical production have been curtailed, with shortages expected to persist through the rest of 2026. Downstream effects are widespread: higher costs for plastics used in automotive parts, packaging, textiles, detergents, and consumer goods are feeding into broader inflation. Fertiliser (urea) exports — over 30 per cent of global supply from the Gulf — have also been hit, raising food security concerns in import-dependent regions. 

Macroeconomic Updates

US data reflect energy-driven price pressures amid resilient labour markets. March CPI rose 0.865 per cent month-on-month (3.26 per cent year-on-year), with energy components surging; core CPI was softer at 0.196 per cent m/m (2.60 per cent y/y). The Producer Price Index (final demand) advanced 0.5 per cent m/m and 4.0 per cent y/y — the strongest 12-month gain in recent memory. Non-farm payrolls for March added 178,000 jobs (boosted by healthcare strike reversals), while manufacturing indices (ISM and related) remain mixed but stable amid higher input costs. 

 

In China, March trade data showed exports growing a modest 2.5 per cent year-on-year (missing estimates) while imports surged 27.8% (well above forecasts), narrowing the trade surplus. Q1 overall trade hit a record, with exports up 11.9 per cent and imports 19.6 per cent. CPI rose a subdued 1.0 per cent y/y, while PPI turned positive for the first time in 41 months at +0.5 per cent y/y, signalling imported inflation from energy costs. 

 

We believe that the impact of war would only start to be seen in the economic numbers after three months, with Asian economies to be hardest hit, as Asia, home to major net oil importers (China, India, Japan, South Korea), faces a double hit from elevated crude and petrochemical costs. Higher import bills are exacerbating inflation and pressuring current accounts, while feedstock shortages disrupt refining and manufacturing. China’s import surge in March partly reflects stockpiling efforts, but sustained high prices risk slowing GDP growth, curbing industrial output, and feeding into consumer prices. Regional airlines and logistics firms are already trimming capacity due to jet fuel constraints. Overall, the energy shock threatens to shave growth forecasts and stoke stagflation risks across the continent.

Outlook

With Hormuz flows still impaired and regional infrastructure damage unresolved, near-term market stabilisation remains unlikely. Brent is expected to trade within an $85–110/bbl range, underpinned by sustained supply risk and elevated spot premiums. Notably, dated Brent continues to briefly hover above $130/bbl, reflecting acute physical tightness that is unlikely to subside without a credible diplomatic breakthrough. Until then, spot cargoes are expected to command premiums of $25–30/bbl over futures. Over the medium term, assuming gradual normalisation by Q3, Brent could ease toward $80–90/bbl by year-end as shut-in volumes return and demand destruction becomes more visible. Nevertheless, the 2026 outlook remains geopolitically fragile, reinforcing a structurally higher oil price regime.  (Disclaimer: This article is by Mohammed Imran, research analyst, Mirae Asset Sharekhan. Views expressed are his own.)