Fitch Ratings has raised its 2025 oil price assumptions due to higher geopolitical risks, and has increased its Henry Hub natural gas price assumptions for 2025-2027, reflecting increasing exports and reducing storage levels. Our medium-term and mid-cycle assumptions for oil and all European gas price assumptions are unchanged.

The increased short-term Brent and WTI price assumptions reflect the higher geopolitical risk premium due to recent events in the Middle East. However, the oversupplied global oil market – with moderating demand, robust production growth and large OPEC+ spare capacity – is likely to restrain price increases, barring any material interruptions to key oil transportation routes.

We now assume global oil demand will grow by about 800,000 barrels per day this year, compared with our March expectations of slightly over 1 million barrels per day (MMbpd). The market will remain oversupplied in 2025 due to faster supply growth. OPEC+ had significant spare production capacity of 5.4MMbpd in May and it has been unwinding 2.2 MMbpd of voluntary production cuts quicker than expected, announcing an output increase of 411,000bpd for July for the third consecutive month. Global output will increase by 1.8MMbpd this year, according to the International Energy Agency (IEA), of which 1.4MMbpd will come from non-OPEC+ countries.

Iran produced 3.5 million barrels of oil equivalent per day (MMboepd) and exported 1.7MMboepd of crude oil and condensate in May 2025, mainly to China, according to the IEA. Even in a scenario where all Iranian oil exports are disrupted, they can be replaced by growing global oil production and OPEC+ spare capacity over time. The key risk stems from potential material and protracted disruptions to oil flows through the Strait of Hormuz, which accounts for about one quarter of all seaborne global oil trade, including petroleum products.

Any material and protracted interruption of oil flows through the strait would lead to a significant increase in oil prices. Available spare pipeline capacity of 2.6MMbpd in Saudi Arabia and the UAE, according to the US Energy Information Administration, would provide only a limited alternative. In 1Q25, 14MMbpd of crude oil and 5.9MMboepd of petroleum products were transported through the strait.

The increased short- and medium-term Henry Hub price assumptions reflect growing LNG exports due to robust demand, particularly in Europe. The supply response has been modest and largely in line with domestic consumption growth. As a result, storage levels have been declining, and we expect this trend to continue through 2026, supporting higher prices.

Source: Fitch Ratings