UBS Raises Brent Forecast to $110 as Houthi Strike on Saudi Refinery and Middle East Escalation Fears Drive Oil Surge

UBS lifted its year-end Brent crude forecast to $110 per barrel, up from a prior target of $100, citing persistent Middle East supply risks, collapsing global inventories, and record shipping costs. The bank set a March 2027 target of $95 per barrel and a June 2027 target of $90, signaling an expectation of gradual moderation after a near-term price peak. The revision came as Brent gained more than 1.6% on the day, briefly topping $111 per barrel.

The upgrade was underpinned by a stark deterioration in supply fundamentals. Global visible crude and product inventories have fallen by more than 500 million barrels since February, largely exhausting strategic reserve buffers. Tanker freight costs on the critical Middle East-to-China corridor have surged to $30-$40 per barrel, compared with historical averages of $1-$3, driven by security surcharges and ship-to-ship transfer bottlenecks in the Strait of Hormuz. The Canadian oil benchmark widened to a roughly $31-per-barrel discount to WTI, its widest gap in approximately eight years, with expensive freight cited as the driver of an accelerating balkanization of the global oil market.

A Houthi ballistic missile strike on Saudi Arabia's Ras Tanura refinery in the Eastern Province added fresh supply risk on Tuesday, with Reuters also reporting that oil prices were rising on reports of potential US strikes on Iran following next week's midterm elections. The World Bank separately projected global energy prices would rise 32% in 2026, reaching a four-year high, and warned that any further escalation in the Middle East conflict or continued damage to Russian oil infrastructure could push prices even higher. The UK's Office for Budget Responsibility cautioned that if energy prices reach a higher and more sustained peak, UK government borrowing could run £17 billion above its central forecast in 2027-28.

The Bank of Canada's Monetary Policy Report assumed Brent would average around $100 per barrel in Q4 before gradually falling to approximately $75 by end-2028, a notably more conservative path than UBS's near-term call. Fuel industry executives separately warned that diesel prices may remain elevated into spring 2027. In India, the energy price surge is pressuring downstream refiners and import-dependent sectors while boosting realizations for domestic upstream exploration and production companies; Indian refining stocks including Mangalore Refinery and Petrochemicals and Chennai Petroleum Corporation fell sharply on the day.