Macquarie sees the Middle East conflict ending within weeks, freeing a 2M bpd surplus by the fourth quarter. Bulls warn 4% of global supply is at risk. July rate hike odds stand at 38%.
Brent crude oil slid sharply this week. A ceasefire report from the Middle East weighed on prices. Macquarie Bank added to the pressure, forecasting the conflict could end within weeks and the oil market could swing to a 2 million barrel a day surplus by the fourth quarter. Macquarie sees that surplus doubling in the first quarter of 2027.
The selloff broke a pattern that held for much of 2024, traders said. Falling oil prices usually eased inflation fears and weakened the dollar. This time is different. CME derivatives put the odds of a Federal Reserve rate hike in July at 38%, the highest level of uncertainty since September 2024. A surprise move from the Fed would give the dollar fresh support, traders added.
Macquarie's surplus call rests on a timeline tied to the US mid-term elections. Analysts at the bank expect a de-escalation within weeks, not months. Traffic through the Strait of Hormuz remains subdued. Oil is still flowing through the Red Sea. Kpler estimates roughly 25 tankers have passed through the Bab el-Mandeb Strait. As long as the Houthis do not act on their threats, the supply disruption risk is limited, traders said. The resumption of the Caspian Pipeline Consortium's operations in the Black Sea further eased fears of supply disruptions.
The bulls have not conceded. Barclays said oil flows through the Strait of Hormuz have halved to 2.9 million barrels a day from 5.9 million. Societe Generale estimates roughly 4% of global supplies remain at risk. SocGen analysts added that each month of conflict in the Middle East adds $10 a barrel to Brent's price.
On the demand side, Chinese crude imports are expected to rebound to 7.8 million barrels a day in July from a 10-year low of 6.2 million in June, traders said. The rebound in demand from the world's biggest crude buyer could keep a floor under prices even as the supply outlook loosens, they added. The fragile ceasefire and the pickup in Chinese buying both suggest Brent will struggle to return to the levels seen before the conflict escalated, traders said.
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