came under significant pressure following the temporary deal between the US and Iran. But the recent flare-up in hostilities poses risks. The key factors for the outlook remain the sustainability of the Persian Gulf supply recovery and how soon Chinese buying returns to the market
Oil Supply Recovery Clashes With Weak Chinese Buying
The oil market came under significant pressure following the Memorandum of Understanding between the US and Iran on 17 June. The deal allowed oil flows to recover at a much quicker pace than expected, which led to a weakening in the physical oil market. The return of Persian Gulf supply coincided with the continued release of oil from strategic reserves, along with demand recovering at a relatively slower pace than supply.
However, it is important to note that flows have not fully normalised. And, the latest escalation in US–Iran military tensions this week raises new risks. Vessels transiting the Strait of Hormuz remain well below pre-war levels. And recent developments show that safe passage of vessels is still an issue facing the market. When volumes bypassing the Strait are taken into account, oil flows have been in the region of 14m b/d – still far below the pre-war levels of 20m b/d, but up significantly from the levels seen during the peak of the war.
We had originally anticipated that the normalisation of oil flows from the Persian Gulf would take much of the third quarter; it is possible that this normalisation could be achieved by the end of July. However, this is a very fluid situation, and this can certainly change depending on how recent events unfold.
The quicker ramp-up has led us to revise our ICE Brent forecast lower for the remainder of the year. We’re now expecting Brent to average $80/bbl in 3Q26 and $74/bbl in 4Q26. Meanwhile, for 2027, we forecast Brent to average $70/bbl. The key assumption behind these forecasts has been that there would be no further meaningful disruptions to flows through the Strait of Hormuz. This may be too optimistic, given the recent re-escalation. And in reality, we could see the market trading between our base case and our more aggressive scenario, where Brent tests $100/bbl in the third quarter.
Our balance sheet still shows the market in a slight deficit in the third quarter of this year, before returning to a surplus in the fourth quarter and then a meaningful surplus in 2027. As a result, we do expect the market to find some support in the near term, once we have cleared the overhang of tankers that have been stranded in the Persian Gulf. Clearly, risks around the broader ceasefire should also offer some support.
Apart from Persian Gulf oil flows, the other key factor for the outlook is Chinese demand. China has been crucial in helping balance the market through the Iran war, cutting imports significantly. Crude oil imports were down 30% year-on-year in May, and vessel tracking data suggests imports fell even further in June.
The biggest uncertainty for the market is when China returns to buying. A prolonged absence could keep pressure on prices. With the government relaxing export restrictions on refined products, we could start to see refiners increasing run rates, supporting crude demand. But that won’t be enough. We also need to see a recovery in domestic demand, which is estimated to have been down 1.4m b/d year-on-year in 2Q26.
China Has Helped Rebalance The Market Through Persian Gulf Supply Disruptions
Source: NBS, China Customs, ING Research
European Natural Gas Remains Vulnerable
European prices held up better than oil prices following the MoU, with the LNG supply recovery more modest. Also, the ramp-up of LNG plants in Qatar will also take time. QatarEnergy has extended the force majeure on some supply until early September.
LNG imports into Europe have come under pressure as Asia competes more aggressively for spot cargoes, with flows from the Middle East still heavily disrupted.
These lower import volumes have coincided with heatwaves across Europe, which would have boosted gas demand for power generation needs to meet cooling demand.
As a result, EU gas storage remains tight, having only recently passed the 50% level, well below the five-year average of 66% full at this point in the year. It’s looking as though it will be difficult for the region to hit even the lowest target of 75% under EU rules. El Niño conditions may mean a milder start to the 26/27 heating season, which would offer some relief to the market, but this isn’t guaranteed.
We expect European natural gas prices to remain well-supported until the end of the 2026/27 winter.
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