Kuala lumpur: Oil prices are expected to fall to US$66 per barrel in the second quarter of 2026, following a stronger performance of US$78 per barrel in the first quarter, before gradually recovering towards year-end.

According to BERNAMA News Agency, the research unit of Fitch Solutions, BMI, stated that their forecast remains unchanged, with Brent crude projected at an annual average of US$70 per barrel for 2026. The outlook assumes a relatively rapid post-conflict recovery, with limited lasting damage to critical upstream production and export infrastructure, as well as a two-to-four week normalization of flows through the Strait of Hormuz.

BMI highlighted the risks associated with a longer-duration conflict, noting that their country risk team assigns a 35 percent probability to an 'extend-to-end' scenario, lasting up to eight weeks, and a 25 percent probability to an 'extend-to-escalate' scenario, lasting multiple months. Should the 'extend-to-end' scenario occur, BMI would adjust its annual average forecast for Brent to a range of US$75-82 per barrel for 2026.

The report indicated that the disconnect between paper and physical markets is unsustainable, predicting greater contagion to Brent prices under the 'extend-to-end' scenario. Global market deficits are anticipated to range from 7.5 million to 15.0 million barrels per day.

To mitigate losses from the Gulf, market participants and policymakers have engaged in various actions, including pipeline rerouting away from the Strait, strategic inventory releases, and a temporary waiver of certain oil-related sanctions on Russia and, to a lesser extent, Iran. However, these measures are rapidly depleting, leaving fewer options in the coming weeks.

Furthermore, as the conflict continues, threats to residual flows through the Strait of Hormuz and volumes transiting the Red Sea are expected to rise, increasing the risk of widespread damage to critical production and export infrastructure in the region, potentially slowing post-conflict recovery.