HSBC warns oil market stuck in 'tighter for longer' phase, lifts Brent forecasts

HSBC's latest assessment strengthens the view among analysts that supply risk remains elevated while the Strait of Hormuz operates at restricted capacity. With transit flows holding at roughly 30% of pre-conflict volumes, traders are expected to maintain a persistent risk premium rather than anticipate a swift return to normal operations. The bank's scenario analysis, which ranges from a potential surge toward $120 a barrel if diplomatic efforts fail to a drop into the $70s should a ceasefire take hold, creates a wide trading range tied to political developments. Growing utilisation of alternative pipelines in Saudi Arabia and the UAE also reduces the direct impact of any single incident in the strait, as overall Gulf export capacity is now less dependent on that passage than before the hostilities. Refining margins are cited as an additional area of concern, with tight product markets providing a secondary and less visible source of upward pressure on prices.

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Even the warmonger himself sees higher prices:

• Trump says oil prices won't come down until after the midterms

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HSBC now anticipates a fundamentally tighter oil market extending well into 2027, despite bypass pipelines gradually relieving some pressure on the Strait of Hormuz.

Summary:

• HSBC raised its 2026 Brent forecast to $90 a barrel from $80, and its 2027 forecast to $85 from $65, with a longer term assumption of $75 from 2028
• The bank says Hormuz flows have settled near 30 percent of pre conflict levels since the US-Iran memorandum of understanding collapsed in July
• Base case assumes a fragile US-Iran understanding that remains prone to breakdowns, with Hormuz liquids flows rising from around 6 million barrels a day currently to 8 million by year end and 9.5 million by mid 2027, still far below the 19 to 20 million barrels a day seen before the conflict
• Bypass flows through Saudi and UAE pipelines are expected to rise from just over 4 million barrels a day to 6.8 million by mid 2027, lifting total Gulf export volumes to around 16.5 million barrels a day
• HSBC does not expect the market to rebalance until around mid 2027, implying further inventory drawdowns in the meantime, and it has also raised its refining margin assumptions through 2028
• Two alternative scenarios were outlined: a stalemate case where Brent could climb to around $120 if diplomacy fails, and a recovery case where a durable ceasefire could push Brent down to the $70s by the first quarter of 2028

HSBC has increased its Brent crude price projections, raising its 2026 estimate to $90 per barrel from $80 and its 2027 forecast to $85 from $65, as detailed in an oil market note from the bank's analysts, including senior global oil and gas analyst Kim Fustier. The bank also upgraded its long-term price assumption to $75 per barrel starting in 2028.

The revision reflects what HSBC calls a disrupted new normal in the Strait of Hormuz, the vital shipping route at the entrance to the Persian Gulf. Following the collapse of a US-Iran memorandum of understanding in July, the analysts note that transit through the strait has stabilised at roughly 30% of pre-conflict levels, though with significant daily fluctuations. Instead of a complete shutdown or a full reopening, HSBC describes the current situation as persistently impaired, and its updated base case assumes a tenuous understanding between Washington and Tehran that remains susceptible to repeated failures and ongoing uncertainty about security, control, and insurance.

Under this base case, the bank anticipates liquids flows through Hormuz will recover only gradually, increasing from about 6 million barrels per day currently to 8 million by late this year and 9.5 million by mid-2027. Even at that level, HSBC points out, flows would remain well below the 19 to 20 million barrels per day that passed through the strait before the conflict, leaving the oil market tighter for longer than the bank had previously anticipated.

Bypass infrastructure is increasingly helping to offset that deficit. HSBC highlights existing and planned pipelines in Saudi Arabia and the UAE as a way for total Gulf exports to recover even if strait volumes stay structurally lower. In the bank's base case, bypass flows rise from just over 4 million barrels per day currently to 6.8 million by mid-2027, pushing total Gulf export volumes to roughly 16.5 million barrels per day. Even so, HSBC does not expect the market to achieve balance until around mid-2027, implying continued inventory drawdowns in the coming quarters. The bank also pointed to constrained product exports from the Gulf, low inventories, elevated freight and insurance costs, disruptions related to Russia, and limited spare refining capacity as factors supporting unusually strong refining margins, prompting it to upgrade its refining margin estimates for 2026 through 2028.

Beyond its base case, HSBC outlined two alternative scenarios. In a stalemate scenario, if diplomacy fails and Hormuz flows remain near current levels, the bank sees inventories drawing toward operational lows and Brent rising to about $120 per barrel, before easing in the third quarter of 2027 as demand destruction and faster non-OPEC supply help restore balance. In a recovery scenario, a durable ceasefire reached in the fourth quarter of this year could push total Gulf exports back toward pre-conflict levels, allowing the market to rebalance by year-end and shift into a surplus of more than 3 million barrels per day in 2027, with Brent potentially falling to the $70s by the first quarter of 2028. The gap between these two outcomes underscores how much of the current price structure still depends on the path of the US-Iran standoff.