Wall Street split on oil outlook after US-Iran deal eases Hormuz risk

Morgan Stanley has lowered its oil price forecasts for the remainder of 2026, citing expectations of improved supply flows following the US-Iran agreement to reopen the Strait of Hormuz. 

The bank said the deal has eased geopolitical risk premiums and could gradually normalise global trade routes disrupted by months of conflict, according to a Bloomberg report on Tuesday.

Morgan Stanley now expects Brent crude to average $84 a barrel in the third quarter, down from $90 previously, and $80 in the fourth quarter, compared with $85 earlier. 

West Texas Intermediate (WTI) is projected at $82 in Q3 and $78 in Q4, reflecting expectations of smoother shipping through Hormuz and a modest recovery in Iranian exports.

Goldman Sachs, however, struck a more optimistic tone, the report stated. The bank forecast Persian Gulf exports could return to pre‑war levels as early as late July, suggesting a faster rebound in supply. 

Goldman trimmed its Brent outlook to $80 in Q4, down from $90, but emphasised that the reopening of Hormuz could deliver quicker relief than Morgan Stanley anticipates.

Market reaction and price dynamics

Oil prices fell sharply after the announcement of the Hormuz deal, with Brent slipping below $83 a barrel and WTI trading near $80 on Tuesday morning.

Traders interpreted the agreement as a sign that geopolitical risk premiums,  which had inflated prices since February, may begin to unwind.

Bloomberg noted that Morgan Stanley’s downgrade aligns with similar revisions from other banks, including Citi and UBS, which have also trimmed forecasts amid expectations of easing supply constraints. 

The consensus now points to a more balanced market in the second half of the year, though analysts warn that lingering uncertainty could keep volatility elevated.

The investment banks highlighted that weaker Chinese crude imports and steady US production growth have further contributed to a softer outlook. 

“Demand growth remains tepid, and inventories are sufficient to absorb short‑term shocks,” Morgan Stanley said in its note.

Broader implications for energy markets

The reopening of Hormuz, which handles about a fifth of global oil and liquefied natural gas shipments, is expected to restore confidence among refiners and traders.

Yet Morgan Stanley cautioned that logistical challenges and insurance costs could persist, slowing the pace of recovery.

Goldman Sachs, by contrast, argued that the deal could quickly stabilise flows, with refiners and shipowners eager to resume operations once security guarantees are in place. 

The divergence underscores Wall Street’s split sentiment with some seeing a gradual normalisation, others anticipating a swift rebound.

Bloomberg added that the deal could have ripple effects across other commodities.

Natural gas and refined product markets may see improved flows, while shipping rates could stabilize as insurers reassess risk exposure. 

Still, analysts warned that any setback in implementing the agreement or renewed hostilities could quickly reverse the recent price declines, the report noted.

Outlook for the remainder of 2026

Morgan Stanley expects oil prices to remain range‑bound through the summer, with Brent fluctuating between $80 and $88 as traders gauge progress on the Hormuz reopening.

The bank sees limited upside unless global demand strengthens or supply disruptions re‑emerge.

Goldman Sachs, meanwhile, anticipates a faster recovery, projecting that Persian Gulf exports could normalise by late July.

That outlook suggests prices could stabilise sooner, though analysts agree that geopolitical risks remain a constant threat.

Experts believe that while the Hormuz deal marks a significant diplomatic breakthrough, its economic impact will unfold differently depending on how quickly confidence returns to shipping and energy markets. 

For now, Wall Street remains divided, while Morgan Stanley urges caution, Goldman sees quicker relief, and traders are left navigating a market in transition.