Oil set for steepest quarterly drop since 2020 pandemic

Oil prices fell on Tuesday and are set for their worst quarterly decline since the early days of the COVID-19 pandemic, driven by expectations that diplomacy between the United States and Iran could restore crude flows through the Strait of Hormuz faster than markets had anticipated.

Brent crude futures were down nearly 20 percent in the second quarter, with prices hovering in the low $70s per barrel — a sharp reversal from the supply-shock highs that followed the US military strike on Iran in late February. The sell-off has accelerated in recent weeks as traders price in the prospect of restored Middle Eastern oil exports, even as Washington and Tehran publicly disagree over the status of negotiations.reuters+3

Conflicting Signals From Doha

President Donald Trump wrote on his Truth Social platform Monday that "Iran has requested a meeting. It will take place tomorrow in Doha," with the White House confirming that special envoy Steve Witkoff and Jared Kushner would travel to Qatar. But Iran's Foreign Ministry spokesman Esmail Baghaei said Tehran would not hold "negotiation meetings with the US side at any level" in the coming days, insisting its delegation was traveling to Doha only to discuss frozen asset releases and ceasefire implementation with Qatari mediators.dw+2

The conflicting statements kept oil markets on edge Tuesday. Despite the diplomatic dissonance, the broader trajectory — a memorandum of understanding signed this month and a mutual pause in hostilities — has convinced traders and analysts that Hormuz flows will recover.xtb+1

Morgan Stanley Sees Massive 2027 Surplus

Morgan Stanley ↗ 0.98% cut its Brent forecast for the second time in two weeks, lowering its third- and fourth-quarter 2026 estimates to $75 per barrel and projecting prices at $70 by late 2027. The bank now models a global oil surplus of 4.8 million barrels per day in 2027, driven by recovering Middle East exports, resilient US production, and weak Chinese demand. Goldman Sachs The Goldman Sachs Group, Inc. ↗ 0.14% has also lowered its forecasts, signaling broad consensus among major banks that the era of supply anxiety is ending.globalbankingandfinance+2

Iraq Pushes for Higher OPEC Quota

Adding to the bearish outlook, Iraq last week escalated its campaign for a larger OPEC production ceiling, with Oil Minister Basim Muhammad Khudhair seeking a target of 5 million barrels per day. Reuters reported Sunday that the push is driven by revenue pressures from disrupted exports during the conflict, as well as fresh upstream investment commitments from BP ↗ 3.46%, TotalEnergies ↗ 2.53%, ExxonMobil Exxon Mobil Corporation ↗ 0.59%, and Chevron ↗ 2.12%. Iraq's oil ministry briefly raised the prospect of leaving OPEC if its quota is not increased — a threat quickly walked back as not reflecting the government's official position.worldoil+3

Iraq's current quota stands at 4.378 million barrels per day, though actual output remains well below that level due to the Hormuz disruption. Three Iraqi officials told Reuters the country is targeting 7 million barrels per day in the coming years.usnews+1