Global oil prices are coming under a sharp reversal, with prices trending towards $70 per barrel just months after forecasts and geopolitical tensions drove crude above $100, showing the volatility underpinning the market.

At the peak of Middle East tensions in May, Brent crude rose above $116 per barrel, while the U.S. benchmark, WTI, settled at $102.88 per barrel, its highest level since July 2022.

The rally was fuelled by fears of a prolonged disruption to the Strait of Hormuz following the war in Iran and escalating rhetoric from US President Donald Trump.

However, sentiment has shifted after a Memorandum of Understanding between the United States and Iran aimed at reopening the Strait.

Energy consultancy Wood Mackenzie said on Monday that the agreement has altered market expectations, reducing the likelihood of a sustained supply shock.

In a new outlook, Wood Mackenzie forecasts Brent crude will average $78 per barrel in 2027, potentially easing further to $70 per barrel by the fourth quarter of that year, assuming transit flows through the Strait normalise by August.

Senior Vice President, Macro Oils at Wood Mackenzie, Alan Gelder, said the “MoU changed that trajectory. A prolonged closure would have pushed Brent well above $150 a barrel, but recovery across the value chain will take time.”

The shift in outlook reflects a rapid change in investor positioning. According to Wood Mackenzie, bullish bets on Brent crude fell by about 80 per cent in the four weeks to 16 June from a five-year high, signalling a sharp decline in expectations of sustained price increases.

Strengthening Mackenzie’s projections, Brent averaged $78 per barrel on Tuesday, down from the average $92 per barrel in the first half of 2026, supported by elevated prices between March and May.

Vessel tracking data from the firm indicates that traffic through the Strait of Hormuz has improved but remains below pre-conflict levels.

The disruption removed more than 11 million barrels per day of crude supply from global markets at its peak.

Wood Mackenzie estimates that about 70 per cent of these volumes could return within three months of a full reopening, and up to 90 per cent within six months, although the remaining supply may take significantly longer to restore.

Refining indicators also highlight lingering imbalances as Jet fuel crack spreads remain nearly double pre-war levels despite easing in recent months, pointing to continued tightness in refined product markets.

Other market watchers had earlier maintained a more cautious near-term outlook as JPMorgan said last month that global oil prices could remain in the “low $100s” for much of 2026 even if the Strait reopens soon, reflecting delayed supply recovery and inventory rebuilding.

Meanwhile, International Monetary Fund Managing Director Kristalina Georgieva had earlier warned that sustained oil prices between $120 and $130 per barrel through 2027 could slow global economic growth to around 2 per cent, effectively tipping the world into a technical recession.

The analysts believe that the divergence in forecasts reflects ongoing uncertainty as the current projections hinge on a fragile geopolitical backdrop, including unresolved tensions involving Israel’s military operations in Lebanon and the risk that US-Iran negotiations could stall.