Crude oil prices are projected to fall significantly this year, driven by hopes of a peace deal between the US and Iran, which could lead to the reopening of the Strait of Hormuz, and a notable drop in Chinese demand for seaborne crude imports.
Illustration: Dado Ruvic/Reuters
Key Points
- Hopes of a US-Iran peace deal and the potential reopening of the Strait of Hormuz are key factors driving down crude oil prices.
- Fitch Ratings projects Brent crude to average $100-110 a barrel in May-July, then fall to $80 in August, and around $70 from September.
- The Strait of Hormuz closure has blocked 20 per cent of global oil consumption, with half of the exported volumes previously destined for China and India.
- Chinese seaborne crude imports fell to a decade-low of 6.7 million barrels per day in May, significantly impacting global demand.
- Analysts recommend treating geopolitically driven price spikes as opportunities to lighten positions, as the war risk premium unwinds.
Hopes of a peace deal between the US and Iran saw crude oil prices fall nearly 4 per cent on Friday to around $87 a barrel (bbl).
If an agreement materialises, analysts predict Brent oil prices will head even lower. Fitch Ratings’ base case Brent oil price of $87 a bbl on average for 2026 reflects its assumption that the Strait of Hormuz will reopen around July-end, implying an effective five-month closure.
Impact of Hormuz Reopening and Geopolitical De-escalation
“Oil price dynamics hinge on the timing of Hormuz reopening.
Our assumed end of July reopening would push the market back into oversupply in Q4 2026 [October-December] and drive oil prices lower.
The risk remains binary,” said Angelina Valavina, managing director of Fitch Ratings.
According to Fitch Ratings, Brent crude oil is likely to average $100-110 a bbl in May-July, before falling to $80 a bbl in August, and to about $70 a bbl from September.
Fitch said that Iran’s effective closure of the Strait of Hormuz has blocked the transit of 15 million barrels per day (mbd) of crude oil and 5 million barrels of oil equivalent products per day, accounting for 20 per cent of global oil consumption.
Half of the oil volumes transported through the Strait of Hormuz before the war were exports from Saudi Arabia and the United Arab Emirates.
The remainder were exports from Iraq, Kuwait and Iran itself, Fitch said.
Half of the exported volumes were destined for China and India.
Cooling Off and Market Fundamentals
From around $70 a bbl (before the West Asia war) in February 2026, Brent crude prices jumped nearly 79 per cent to around $125 a bbl as the conflict unfolded.
Hopes of an end to the war triggered a fall to below the $100 a bbl mark.
The progress in regional de-escalation, reopening of key export routes, and the return of Gulf barrels is easing crude oil supply concerns, said Mohammed Imran, research analyst at Mirae Asset Sharekhan.
Although the Energy Information Administration maintains Brent projections near $105 a bbl for June-July, Imran said that is contingent on continued disruptions in Hormuz.
Beyond this, its forward curve trends lower toward around $79 a bbl by 2027.
“We recommend treating any geopolitically driven price spikes as opportunities to lighten positions.
“The war risk premium that once supported prices is now steadily unwinding as fundamentals reassert control,” Imran said.
Declining Chinese Demand
Analysts at Rabobank International, too, have lowered their forecast for crude oil prices, projecting that China’s demand will drop.
Seaborne crude imports in China, they said, fell to 6.7 mbd in May — the lowest monthly print in a decade, down 3.5 mbd year-on-year and 4.4 mbd below the first-quarter 2026 average of roughly 11.1 mbd.
China’s state-owned and private refiners have curtailed refinery runs in response to weak and even negative product margins, said Rabobank analysts in a note.
Crude availability is uncertain on top of elevated input costs.
Consequently, Chinese refinery throughput has fallen to roughly 13.1 mbd, down 1.8 mbd Y-o-Y and approaching levels last seen during the pandemic period in 2020.
“We are changing our Q32026 forecast to $103/bbl, Q42026 to $93/bbl.
“We are lowering our 2027 Brent forecast to $85/bbl from $88/bbl,” wrote Rabobank’s Joe DeLaura and Florence Schmit in the note.
