Overview#
Bank of America (BofA) has updated its forecast for Brent crude oil prices for 2026, raising the expected average price to $77.50 per barrel. This adjustment comes as disruptions in the Strait of Hormuz are tightening global oil supply and accelerating the depletion of oil inventories.
Impact of Strait of Hormuz Disruptions#
The Strait of Hormuz is a vital passage for oil, with approximately 20 million barrels per day of crude and refined products typically passing through. Recent conflicts have halted traffic in this region, leading to significant supply constraints. BofA noted that around 200 million barrels of crude have already been removed from the global market, which has affected inventory levels considerably.
Price Scenarios#
BofA's forecast includes two main scenarios. If oil flows normalize by April, the average price could settle around $70 per barrel. However, if disruptions continue into the second quarter, prices might rise to about $85. In a less likely extreme scenario, if the conflict persists into the latter half of the year, prices could average around $130 per barrel.
Long-Term Outlook#
Looking beyond 2026, BofA anticipates that once the conflict concludes, oil markets may revert to a surplus, potentially driving Brent prices back down to $65 in 2027. The bank has also raised its mid-cycle oil price assumption from $65 to $70, reflecting a stronger pricing environment. This increase has positively influenced valuations in the U.S. exploration and production sector, with average price targets for oil-focused companies rising by about 17%.
BofA continues to favor certain companies in this sector, including Diamondback Energy, and highlights Devon Energy and Ovintiv as promising mid-cap options. Additionally, the bank maintains a Buy rating on California Resources, citing its efficient capital plan for 2026.