Prospects for growth in crude oil production appear optimistic for 2027, despite current supply constraints stemming from the ongoing conflict in Iran, analysts have indicated. Research agency BMI, a division of Fitch Solutions, stated, “While supply will remain heavily constrained in the short term, we have grown more bullish on prospects for growth in 2027. This is the result of three key factors.”
The first factor is favorable base effects from 2026, attributed to the cumulative supply loss that exceeds 600 million barrels for crude and could escalate to over one billion barrels if the conflict extends into June.
The second factor is the anticipated higher restocking requirements, paving the way for a potential unwinding of the OPEC-plus production cut deal over the latter half of 2026 and into 2027, which includes both the 1.65 million barrels per day (mbd) and 2.2 mbd cuts.
The third factor involves the United Arab Emirates (UAE) exiting the OPEC group, allowing it to enhance its targeted production capacity of 5 mbd in the upcoming years.
According to ING Think, the economic and financial analysis branch of Dutch multinational financial services firm ING, about 13 mbd of crude oil supply has been disrupted. However, this has been somewhat balanced by declining inventories. “This leaves the market more vulnerable with each passing day. Tighter stocks will only leave the oil market trading in an ever more volatile manner,” ING Think noted.
Data from the American Petroleum Institute (API) reveals that crude oil inventories dropped by 8.1 million barrels in the past week. Additionally, gasoline and distillate stocks fell by 6.1 million barrels and 4.6 million barrels, respectively, based on US oil inventory reports. BMI pointed out that easily accessible stocks are being depleted quickly, and should the conflict spill over into the summer months, inventories could approach or dip below operational tolerances. “In this scenario, market complacency could easily give way to panic, driving a sharp spike in Brent,” the agency cautioned.
Physical supply shortages are poised to diminish demand in smaller energy markets this month. To restore balance in the market, demand destruction would ultimately need to extend to larger consumers, necessitating a significant price adjustment.
BMI has projected that the average price for Brent in 2027 could reach $72.5 per barrel for Dated Brent and $72 for Brent futures, assuming the conflict persists into June. On the other hand, ING Think noted that US commercial crude oil inventories remain stable at 459 million barrels, which is over 1 percent above the five-year seasonal average. “…this can change quickly, particularly if we continue to see record US crude oil exports,” it added.
BMI observed a notable disconnect between financially-settled contracts, such as Brent futures, and physically-settled contracts, like Dated Brent. The spread between these contracts averaged around $7 per barrel in May, which is significantly lower than the $35-plus highs encountered earlier in the conflict. However, the spread remains wide compared to historical norms, likely influenced by various market mechanics.
The agency also noted that throughout the conflict, former US President Donald Trump has consistently sought to stabilize expectations regarding its duration, which has successfully curtailed several price rallies in Brent. Traders have struggled to navigate the volatility resulting from Trump’s social media comments, potentially explaining why futures market price actions seem so disconnected from the ongoing supply disruptions.
In a related development, ING Think reported that Saudi Arabia has reduced its official selling price (OSP) for its flagship Arab Light crude to Asia for June, cutting it from a record premium of $19.50 per barrel over the benchmark in May to $15.50.
