PETALING JAYA: Oil prices have tumbled drastically to dip below US$80 per barrel following the United States-Iran peace deal, but industry experts do not expect the global benchmark Brent crude to return to pre-conflict levels anytime soon.
They said supply disruptions, low global inventories and continued concerns over energy security are likely to keep prices supported despite the recent drop.
As at 6pm yesterday, Brent crude fell 2% to US$77.89 per barrel after touching an intraday low of US$77.15.
The decline marks a drop of about 20% from the start of the month, when Brent was trading close to US$98 per barrel.
Year-to-date, however, Brent remains up about 28% from US$60.85 at the start of the year and had surged to as high as US$118.35 on March 31 amid heightened geopolitical tensions involving the United States and Iran.
An industry executive told StarBiz that the recent decline was driven more by market sentiment than underlying fundamentals.
“The recent crude price weakness has nothing to do with supply and demand at this point in time. It’s more on sentiment,” he said.
He argued that the market may have underestimated the extent of damage suffered by oil and gas infrastructure during the conflict.
“There is still anything between five to 10 million barrels per day (mbpd) out of the equation,” he said, referring to production capacity that remains offline following disruptions to energy facilities.
As a result, he believes supply conditions are likely to remain tight even as geopolitical tensions ease.
RHB Research echoed a similar view, saying the peace deal has eased immediate supply concerns but is unlikely to trigger a quick return to pre-conflict price levels.
“While geopolitical tensions have eased, we believe oil prices are unlikely to immediately return to pre-war levels due to widespread damage across the regional energy value chain,” it said.
The research house said more than 60 energy facilities, including refineries, pipelines, liquefied natural gas plants and petrochemical assets, were reportedly impacted during the conflict, with repair costs estimated at up to US$58bil.
“Given the complexity of these assets, restoration is expected to take months and, in some cases, years – this will result, in our view, to a gradual rather than immediate recovery in supply,” it explained.
“Ongoing repairs to damaged infrastructure, gradual capacity restarts, and supply chain normalisation are likely to support near-term prices.”
RHB Research expects Brent crude to remain supported at around US$80 per barrel in the near term before gradually normalising.
It kept its 2026 and 2027 price assumptions unchanged at US$82.50 and US$72 per barrel, respectively.
Meanwhile, an analyst with a local bank-backed brokerage firm said US$80 per barrel is a “good equilibrium” level for Brent crude for now, at least until year-end.
He noted that rising upstream investment driven by energy security concerns could eventually lead to oversupply.
“Global capital expenditure uprising will happen, which will flood the world two to three years from now,” he said.
The analyst warned this could result in a global supply glut and downward pressure on prices in the longer term.
Additionally, the industry executive pointed to low global inventories as further evidence of a tight market.
According to the US Energy Information Administration (EIA), inventories at Cushing, Oklahoma – where America’s benchmark West Texas Intermediate crude is priced and warehoused – stood at 21.6 million barrels, close to operational stress levels.
In normal times, Cushing holds around 40 million barrels of crude with a storage capacity of up to 75 million, according to United States-based CNN.
The decline reflects strong drawdowns as US crude has been increasingly supplied to global markets, effectively acting as a supplier of last resort for regions that typically rely on Middle Eastern oil, with stocks being depleted faster than they are replenished.
Still, the executive noted that inventories are being drawn down not only in the United States, but also in Europe and China.
He estimated it could take between six months and one year before global supply conditions return to a more sustainable balance.
Looking ahead, the executive said that while oil price forecasts are “always a bit of a crystal ball exercise”, he believes Brent crude should trade closer to US$100 per barrel, supported by continued demand growth from energy-intensive sectors such as artificial intelligence and data centres.
“If prices keep falling, obviously the damage to oil and gas infrastructures were overestimated.”
The executive added that a sustained drop towards US$70 per barrel could discourage investment in higher-cost unconventional oil projects, where breakeven levels are typically around US$60 per barrel depending on the field, potentially tightening supply further over time.
As a result, he believes supply conditions are likely to remain tight even as geopolitical tensions ease.
Data from the IEA showed that global observed oil inventories fell by 143 million barrels in May, equivalent to 4.6 mbpd, accelerating from a drawdown of 74 million barrels or 2.5 mbpd in April.
The agency said stockpiles have been declining at an average rate of 3.8 mbpd since the start of the Gulf conflict, while inventories held by the Organisation for Economic Co-operation and Development governments fell by 163 million barrels or 1.8 mbpd over the same period to their lowest level since December 1990.
However, the IEA expects market conditions to gradually ease over the longer term.
The agency expects global oil demand to contract by 1.1 mbpd in 2026, 700,000 barrels per day lower than its previous forecast, as second-quarter 2026 deliveries plunged by five mbpd year-on-year amid higher fuel prices and supply disruptions.
Demand is expected to rebound by two mbpd in 2027 as trade flows normalise and economic conditions improve.
Meanwhile, global supply is projected to fall by 3.9 mbpd to 102.4 mbpd in 2026 before rebounding by 8 mbpd to 110.3 mbpd in 2027 as disrupted production gradually returns.
In May, global output stood at 94.5 mbpd, down 600,000 barrels per day month-on-month and about 13.6 mbpd below pre-conflict levels.
