PETALING JAYA: Brent crude oil prices are expected to stay above US$100 a barrel and climb even higher if the United States and Iran remain locked in a standoff, leaving the Strait of Hormuz as a major fault line for global oil supplies.
BMI Research, a unit of Fitch Solutions, raised its Brent forecasts after pushing back its expectation for a preliminary US-Iran deal and easing of the Hormuz disruption to early 2027.
It now expects Brent futures to average US$107 per barrel in the fourth quarter of 2026 (4Q26) and US$112 in 1Q27, as rising crude demand and supply constraints erode physical market buffers.
“This assumes that rising demand for crude and continued constraints on the supply side combine to erode physical market buffers, leaving Brent increasingly exposed to renewed bouts of geopolitical escalation and unplanned production outages,” BMI Research said.
The front-month Brent contract fluctuated between US$100 and US$110 per barrel in September.
In a separate note, Kenanga Research raised its Brent crude forecasts to US$91 per barrel for 2026 and US$85 for 2027 from US$80 (2026) and US$74 (2027) after taking into account the prolonged tension between the United States and Iran and uncertainty of the geopolitics in the Middle East.
“While near term resolution is unlikely, we do expect the United States and Iran to at least come to a partial deal in 2027, while negotiations for tougher issues (namely, nuclear) could still be ongoing beyond 2027.
“Hence, in 2027, we believe that crude oil prices would still be lower year-on-year (y-o-y) but we have attached a US$5 per barrel geopolitical premium to our forecast to account for lingering tensions in the Middle East even if a partial deal between US and Iran is secured,” it added.
Meanwhile, BMI Research noted that although economic activity and end-user demand have been affected by the war, refiners continue to demand significant volumes of crude, with government measures to cushion consumers from higher energy costs limiting the decline in demand.
This has compounded price pressures in downstream fuel markets amid conflict-related supply disruptions stemming from the US-Iran and Russia-Ukraine wars.
On the supply side, BMI Research said spare production capacity outside the Middle East Gulf has largely been exhausted, while the pipeline of greenfield projects due to come online in the coming months remains thin.
However, the outlook is expected to turn structurally bearish once a preliminary US-Iran deal is reached.
BMI Research anticipates a sharp selloff in oil prices, with Brent futures averaging US$77 per barrel in 2Q27 before falling to US$70 and US$67 in the third and fourth quarters, respectively.
While the initial selloff is expected to be largely sentiment-driven, underlying market fundamentals also point to a heavily oversupplied market once the impact of the US-Iran war is stripped out.
Middle East Gulf exporters meanwhile are producing well below capacity and could bring additional supply to the market, although BMI Research expects them to exercise restraint in pursuit of price stability.
“Our demand and supply forecasts have moved out of balance, with production growth forecast to average 2.3% y-o-y, and consumption growth 0.7% over this three-year period. Global demand growth is decelerating, amid rising energy efficiency, increased electrification and the broader push to decarbonise the energy mix,” BMI Research said.
For Malaysia, Kenanga Research said higher crude oil prices could support a recovery in upstream oil and gas spending from 2027, although the current rally is unlikely to develop into a multi-year upcycle.
It sees upstream services as offering the most attractive risk-reward as the industry enters the early stages of a potential two-year capex upcycle, recommending investors gradually position in the segment ahead of the recovery.
The research house noted that the oil market and Petroliam Nasional Bhd’s (PETRONAS) upstream capital expenditure (capex) have followed a more cyclical trend since 2014, rather than the multi-year structural upcycle seen between 2010 and 2014.
PETRONAS’ upstream capex has historically lagged crude oil prices by up to two years.
If this pattern holds and crude prices peak in 2026, the upstream capex could peak in 2027 or 2028.
Kenanga Research expects PETRONAS’ upstream spending to increase y-o-y in 2027 as operational transitions, including changes in field entities and operatorship, are completed by end-2026.
Barring unforeseen macroeconomic factors, capex is then expected to peak in 2028.
While a multi-year upstream capex upcycle like that seen from 2010 to 2014 is unlikely, Kenanga Research expects spending to broadly follow its historical cycle, with higher capex over the next two years needed to offset natural field declines after years of underinvestment.
Putting the oil price trajectory into the Malaysian perspective, Center for Market Education economist and chief executive officer Carmelo Ferlito said sustained oil prices above US$100 a barrel could weigh on local demand and growth, particularly through higher transport, logistics and production costs.
He noted, however, that another oil-price shock was not an argument for restoring or expanding blanket subsidies.
“If domestic energy prices are artificially insulated from international market conditions through broad subsidies, consumers and businesses receive the wrong signals, consumption patterns do not adjust appropriately, and investment in efficiency or alternatives is discouraged,” he told StarBiz.
Ferlito stressed that Malaysia should continue moving in the opposite direction.
“Even if the government had ample fiscal space, keeping energy prices artificially low would still be economically undesirable because it distorts behaviour and resource allocation.”
He said the objective should therefore not be to shield the entire economy from higher oil prices.
Instead, the transition should be from universal subsidies towards narrowly targeted vouchers for households that genuinely need temporary protection, and ultimately towards fully market-determined prices.
