Continued Middle East Conflict Drives Oil Prices Higher, Bernstein Raises Brent Crude Price Forecast

Overview

This report evaluates the ongoing impact of Middle East conflicts on the global oil market. Due to disruptions in Hormuz Strait shipping caused by the conflicts, global oil supply tightness has intensified, with inventories continuing to decline. Bernstein has consequently raised its Brent crude price forecast for 2026-2027 and increased its long-term oil price outlook from $70 to $75 per barrel. The report notes that despite market expectations of a quick resolution to the conflicts, physical market tightness will persist, supporting high oil prices.

Core views

The report argues that Middle East conflicts have severely disrupted global oil supply, with shipping interruptions in the Hormuz Strait significantly reducing crude exports and continuously depleting global inventories, thereby driving oil prices higher. As of late May 2026, Brent crude prices have reached approximately $100 per barrel, well above the marginal cost of $75 per barrel, reflecting market pricing of geopolitical risks. The institution has raised its 2026 Brent crude price forecast to $90 per barrel, 2027 to $78 per barrel, and long-term outlook to $75 per barrel. Additionally, with global inventories at low levels and continuing to decline, the market will remain in tight balance in the short term unless conflicts ease quickly or supply resumes. Current market expectations about conflict duration may underestimate the persistence of supply constraints and cost rigidity, leading the institution to believe its oil price forecasts are structurally higher than market consensus.

Analysis framework

The institution first assessed oil price trends by analyzing the direct impact of Middle East conflicts on supply chains, emphasizing the disruption to global oil flows caused by the closure of the Hormuz Strait. Subsequently, by examining inventory data from the U.S. and OECD regions, it verified the rapid depletion of global inventories. Combining supply-demand balance sheets, it analyzed the push effect of global oil supply-demand gaps and inventory adjustments on prices. Finally, by comparing the current market forward curve, consensus expectations, and institutional forecasts, it highlighted that its long-term oil price outlook is above market averages, primarily based on considerations of rising marginal costs and geopolitical risk premiums. This methodology underscores the decisive role of physical market supply-demand dynamics in price determination.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Supply-Demand Framework

  Analyzing supply-demand gaps and inventory changes to determine price trends. Under supply constraints, supply-demand imbalances drive price increases.

• Cycle & Sentiment FrameworkInventory cycle (Kitchin)

  Inventory Cycle

  Observing inventory trends to determine whether the market is in a tightening cycle. Continuous inventory declines indicate market tightness.

• Valuation methodsPE/PEG valuation

  PE/PEG Valuation

  Although this report does not directly use PE/PEG valuation, comparisons with current forward curves and consensus expectations reflect judgments on oil price valuation levels.

Key data

• 2026 Brent Crude Price Forecast$90/bblUp from previous forecast of $80/bbl
• 2027 Brent Crude Price Forecast$78/bblUp from previous forecast of $70/bbl
• Long-Term Brent Crude Price Outlook$75/bblUp from previous forecast of $70/bbl
• Current Brent Crude Price$100/bblWell above marginal cost of $75/bbl
• 2026 WTI Crude Price Forecast$85/bblMaintaining a $4-$6/bbl spread with Brent

Impact & implications

For the global energy sector, this report indicates that geopolitical risks significantly impact oil prices, especially when key shipping routes are disrupted. In the short term, continuously declining global inventories will support high oil prices, benefiting energy company profits. Long-term, rising marginal costs and persistent geopolitical risk premiums are expected to elevate oil price benchmarks, supporting energy company valuations. Additionally, the research institution believes current market expectations about conflict duration and supply constraints are underestimated, suggesting potential upside for future oil prices.

Risks

• Early conflict resolution leading to supply recovery could trigger oil price corrections
• Weak demand, especially accelerated development of new energy vehicles, may weaken oil price support
• Increased production from major oil producers (e.g., UAE, Venezuela) could exacerbate supply pressure
• Global energy transition accelerating may structurally impact traditional energy demand

What to watch

• Middle East developments and Hormuz Strait shipping recovery
• Global inventory changes and OECD commercial inventory trends
• Fuel demand variations in key importing countries like the U.S. and Asia
• Crude production adjustments by OPEC and non-OPEC countries
• Impact of global energy transition on traditional energy demand