Where the market stands now
CICC has released a research report indicating that the center of gravity for Brent crude price fluctuations has been steadily climbing since the third quarter, with the $90 per barrel quarterly average projected in its June mid-year outlook now materializing. The recent escalation of geopolitical tensions in the Middle East has pushed Gulf oil export disruptions back above 10 million barrels per day, with Brent crude breaking through the $100 per barrel mark and spot prices in the North Sea and the Middle East approaching $120 per barrel. Global onshore oil inventories re-entered a drawdown phase in August and September, mirroring conditions from April this year, yet current inventory levels are lower than earlier periods, suggesting that the short-term upside elasticity of crude price premiums remains significant.
Supply floor and demand ceiling dynamics
Looking ahead through the remainder of the year, CICC believes oil prices are likely to be underpinned by a supply floor while capped by a demand ceiling. On the supply side, the pace of Middle East crude production recovery has underperformed expectations since the third quarter, and the recent renewed geopolitical escalation will prompt the market to reassess the persistence of supply losses from the region, thereby elevating the support level for prices. On the demand side, underlying consumption remains weak, and the summer demand recovery should not be extrapolated linearly. Once prices cross $100 per barrel, a demand ceiling is likely to emerge. Incorporating these factors, the firm has revised its 4Q26 Brent price average forecast upward to $85 per barrel, compared with the $80 per barrel projection made in June, to reflect a more sustained supply gap and lower inventory levels.
In the refined products market, rising crude prices and freight costs are squeezing refining margins across Europe and Asia. Crack spreads for products such as gasoline face downward pressure after elevated levels, while CICC highlights a structural shortage in the overseas diesel market and the resilience of its crack spreads as areas of focus.
Key insights from the report
Escalating geopolitical tensions and low inventories amplify short-term risk premium volatility. Since September, the situation in the Middle East has deteriorated once again, worsening disruptions to oil trade. Attacks on tankers involving the US and Iran have increasingly impeded passage through the Strait of Hormuz. According to Kpler data, daily transit volumes through the strait have fallen from 6-7 million barrels per day in July-August to just 2-3 million barrels per day since September. Additionally, tensions between Houthi forces and Saudi Arabia have flared up. Following disruptions to cargo movement through the Bab el-Mandeb strait in August, multiple Saudi energy infrastructure sites have been attacked this week. On September 11, the Saudi Energy Ministry announced the temporary closure of the East-West pipeline as a precautionary measure following multiple attacks, without disclosing details of the damage or a recovery timeline. Since the Strait of Hormuz was first obstructed this year, Saudi Arabia has increased crude exports via the Red Sea route from 1.5 million barrels per day to 4.5 million barrels per day using the East-West pipeline and the Yanbu port, making it a crucial transit route for Gulf crude. CICC preliminarily estimates that Middle East oil exports since September have been reduced by more than 10 million barrels per day compared with pre-conflict levels.
Driven by geopolitical sentiment, Brent prices have breached $100 per barrel this week, and spot market premiums have widened again, reminiscent of late March to April. Spot prices for North Sea and Omani crude are now near $120 per barrel. The premium of North Sea crude spot prices over Brent futures has risen from nearly zero at the start of the month to $13 per barrel, still leaving room compared with the $35 peak seen in early April. Global onshore oil inventories re-entered a drawdown in August, and CICC expects the destocking pressure to intensify further in September, again similar to April.
In the near term, given that current inventory levels are lower than in earlier periods, the firm cautions that oil price volatility could be considerable.
Slower-than-expected recovery lifts the supply floor
Beyond short-term trade disruptions and fluctuating risk premiums, CICC stresses that the recurring geopolitical instability will compel the oil market to reassess the persistence of Middle East crude output losses, pricing in a potentially prolonged supply deficit and lower inventories. This supports a higher floor for oil prices. At the end of the second quarter, optimism about Middle East crude recovery prevailed following a US-Iran ceasefire agreement and the reopening of the strait. However, due to repeated geopolitical flare-ups, the pace of production recovery in July-August has been sluggish. In August, Gulf state crude output was still down approximately 734,000 barrels per day cumulatively versus pre-conflict levels, with the loss ratio nearing 30%. On a month-on-month basis, Saudi crude production fell to 5.97 million barrels per day in August, and Iranian output dropped to 2.16 million barrels per day, both hitting the lowest levels since the start of the US-Iran conflict this year. Given the renewed decline in September exports, CICC has lowered its forecast for Middle East production recovery. Fourth-quarter output may remain 7-8 million barrels per day below pre-conflict levels, accounting for 7-8% of global supply, with the recovery process likely extended into at least the first quarter of 2027. Under this scenario, the firm believes the supply floor for Brent prices this year has risen to $80 per barrel.
Weak underlying demand points to a demand ceiling
The summer oil demand recovery is only marginal and should not be extrapolated too far forward. In July-August, global oil demand recovered sequentially, particularly in Asian markets. Refinery utilization rates in Japan and South Korea improved, Indian refined product consumption turned positive year-on-year in July, and Chinese crude imports rebounded for two consecutive months, all contributing to improved demand expectations. However, as CICC previously estimated, supply-driven price increases tend to suppress demand, and once prices exceed $100 per barrel, negative demand feedback is likely to become the core driver of fundamental rebalancing. After the recent breach of $100, the firm has already observed early signs of declining crack spreads and refining margins for refined products in Singapore. The demand recovery momentum seen over the past two months, which benefited from eased supply pressure, may not continue in a linear fashion. Moving forward, CICC suggests that a demand ceiling may materialize after prices cross $100, with short-term geopolitical supply trading likely remaining volatile and episodic.
Price forecast revision and diesel market outlook
In terms of price projections, CICC has raised its 4Q26 Brent average forecast to $85 per barrel (up from $80 in June) to reflect a more sustained supply gap and lower inventory levels. The firm expects OECD oil inventories at year-end to be approximately 12% below the five-year seasonal average. In the refined products market, rising crude prices and freight costs are pressuring refining margins in Europe and Asia. While crack spreads for gasoline and other products face downward pressure from elevated levels, CICC flags the structural shortage in the overseas diesel market and the resilience of diesel crack spreads as notable concerns.
The firm previously highlighted the risk of rising overseas diesel prices. Since August, European and US diesel prices have climbed approximately 40%, now hovering around $200 per barrel, with diesel crack spreads reaching their highest levels since the US-Iran conflict began. Russian diesel exports fell to 140,000 barrels per day in August, down 82% from 2025 levels, implying a global reduction of about 10% in diesel exports. Russia has extended its diesel export ban through the end of September, and according to IEA data, repairs at Russian refineries may take several months, with Russian crude processing likely to remain roughly 30% below last year's levels for the rest of the year. CICC warns that the diesel supply gap may persist through the year, making it difficult for overseas diesel crack spreads to retreat from their highs.
Chart references
Chart 1: Strait of Hormuz transit volumes (Source: Kpler, CICC Research). Chart 2: Saudi Yanbu port crude loading volumes (Source: Refinitiv, CICC Research). Chart 3: Middle East crude recovery timeline extended (Source: Bloomberg, IEA, CICC Research). Chart 4: Russian oil exports (Source: IEA, CICC Research). Chart 5: OECD oil inventory path forecast (Source: CICC Research).