Brent crude outlook 2026: $112 risk as Hormuz tightens

Why Brent jumped this week

Crude oil prices climbed to a two-week high as geopolitical risks in West Asia returned to the centre of the market narrative. Brent crude futures moved above $106 a barrel and traded in the $105 to $107 range. The rally came alongside reports of attacks on vessels in and around the Strait of Hormuz. The article notes Brent posted weekly gains of nearly 18%.

The immediate trigger was a fresh exchange of threats between the US and Iran, as negotiations appeared deadlocked. Iranian officials cited US rhetoric and naval pressure as barriers to progress. US officials, on their part, signalled limited urgency to revive talks, pointing to constraints on Iran’s oil exports and storage capacity. Political strains within Iran also intensified after the resignation of Tehran’s chief negotiator amid reported internal interference.

Hormuz risks drive a supply premium

Market sensitivity remains high because the Strait of Hormuz is a critical artery for oil flows. The article highlights near-total closure conditions and attacks on energy infrastructure in the Persian Gulf region by mid-March. It also notes that tanker traffic and freight rates were disrupted, adding a logistics-driven risk premium. Media reports about the US military reviewing contingency plans to protect shipping lanes added to concerns around broader disruption.

Brent’s move above $105 is presented as more than sentiment. The piece frames it as a reflection of genuine supply risks tied to Hormuz disruptions. At the same time, it emphasises that the market is balancing these risks against countervailing forces such as US inventory resilience and emerging demand weakness.

IEA flags an historic supply loss

The International Energy Agency (IEA) estimated that roughly 10 million barrels per day (bpd) was taken offline in the Persian Gulf region by mid-March. This is described as about 10% of global supply. In the context of a market where spare capacity is finite and shipping routes are impaired, the scale of the outage is central to price formation.

The article also links the supply hit to physical constraints rather than voluntary strategy. With exports choked and storage filling, producers faced involuntary cuts. It adds that damage to infrastructure could slow any recovery even if hostilities ease, prolonging the period of tightness.

OPEC output falls despite quotas

OPEC members saw crude production fall 27% month-on-month in March to under 21 million bpd, according to the article. The steepest declines were reported in Iraq, Saudi Arabia, Kuwait, and the UAE. Gulf exporters cut output as exports were constrained and storage filled, forcing reductions despite earlier quota plans.

OPEC+ responded with a quota increase of 206,000 bpd for May. However, the article characterises this as symbolic and “largely on paper” given the shipping paralysis. The implication is that headline quota changes may not translate into immediate barrels if export routes remain disrupted.

Russia adds barrels but limits remain

Russia’s crude production edged up to around 8.96 to 9.17 million bpd in March from February levels, based on IEA and OPEC data cited in the article. Even with the increase, output remained below full OPEC+ quotas and reflected underlying capacity constraints tied to earlier maintenance and infrastructure attacks.

Total Russian oil exports of crude and products rose to around 7.1 million bpd, up 270,000 to 320,000 bpd month-on-month. The rise was supported by higher seaborne shipments following temporary US sanctions waivers and elevated prices. China and India remained the biggest buyers.

India’s import picture and the price shock

The article says Indian imports from Russia remained above 2 million bpd, but India’s overall crude imports fell to around 4.5 million bpd in March. The move coincided with a sharp increase in the Indian crude oil basket, which averaged around $113 per barrel in March versus $12 per barrel in February.

It also stresses that Russia’s gains are secondary to the West Asia shortfall and cannot fully offset global tightness. For an import-dependent economy, the combination of higher benchmark prices and disrupted trade flows can quickly feed into fuel costs and inflation, especially if elevated prices persist.

US inventories cushion WTI relative to Brent

The US Energy Information Administration’s Weekly Petroleum Status Report for the week ending April 17, 2026, showed commercial crude inventories (excluding the Strategic Petroleum Reserve) rising by 1.9 million barrels to 465.7 million barrels. The article notes this level is about 3% above the five-year seasonal average.

Refinery inputs averaged 16.0 million bpd, slightly down week-on-week, with utilisation at 89.1%. The article’s takeaway is that US shale output and strategic releases helped cushion domestic markets. It adds that WTI was “somewhat insulated” compared to Brent, with the Brent-WTI spread widening.

Demand destruction and stagflation signals

The piece argues the conflict is amplifying economic slowdown risks, turning an initial supply shock into a dual supply-demand imbalance. It points to April PMI data and highlights the euro area as a laggard, with the composite PMI down 2.1 points to 48.6, a contraction reading.

The IEA revised its 2026 outlook sharply, projecting a contraction of 80,000 bpd for the full year versus prior growth expectations of 640,000 to 730,000 bpd. It estimates global demand fell 800,000 bpd year-on-year in March and could decline by as much as 2.3 million bpd in April.

Refining margins surge as crack spreads widen

Refinery margins expanded sharply amid volatility. The article says the 3-2-1 crack spread rose above $10 to $15 per barrel in recent weeks, far above historical averages of $10 to $10 per barrel. Distillate cracks were particularly strong, reflecting tight middle-distillate balances.

It also flags a risk: prolonged crude tightness could eventually squeeze refinery runs if product demand weakens further. Wider cracks translate into elevated gasoline and diesel prices for consumers, feeding inflation pressures and potentially reinforcing demand destruction.

Key numbers to track

Market impact and analysis

The article’s central message is that pricing is being set by a fragile balance between supply disruption risk and demand erosion. On the supply side, the near-total closure conditions around Hormuz and damage to infrastructure have created a tight physical market, reinforced by involuntary OPEC cuts. Even where quotas rise on paper, logistics can prevent incremental supply from reaching the market.

On the demand side, the IEA’s downgraded 2026 outlook and the sharp year-on-year demand declines estimated for March and April suggest high prices are already curbing consumption. US inventory builds and refinery utilisation data indicate the US market is relatively better supplied than regions more exposed to West Asian flows, helping explain a wider Brent-WTI spread.

Price outlook and what could shift next

The article describes the crude market as being “on a knife-edge” and sees near-term upside risks to $112 or higher if escalations continue. Separately, other reports included in the provided text cite higher scenario risks, including Kotak Securities commentary that Brent, around $109, could breach $130 to $140 if the war prolongs.

Near-term direction, based on the information presented, hinges on whether shipping lanes remain disrupted, whether infrastructure repairs are possible, and whether demand destruction accelerates as inflation pressures spread. Any change in US-Iran diplomatic momentum, or in the operational status of Hormuz-linked trade flows, would also be a key variable.

Conclusion

Brent’s move above $106 reflects a war-driven supply shock centred on Hormuz, reinforced by steep declines in OPEC production and limited immediate replacement capacity. US inventory resilience and weakening demand indicators provide some offset, but the article frames the balance as unstable. The next phase for prices depends on how shipping security and infrastructure disruptions evolve, and whether demand destruction deepens as high prices persist.

Disclosure in the source: The original view is attributed to Mohammed Imran, research analyst at Mirae Asset Sharekhan, and represents his personal views.