CICC: Geopolitical tensions drive up oil prices, raising the Q4 Brent crude benchmark to $85 and highlighting the resilience of diesel crack spreads

(1) China International Capital Corporation (CICC) released a research report stating that since the third quarter, the central axis of Brent oil price fluctuations has continued to rise, with the $90/barrel quarterly average forecasted in the mid-year outlook for June being realized. Recently, the geopolitical situation in the Middle East has intensified again, with Gulf oil exports seeing losses return to over 10 million barrels per day. Brent oil prices have surpassed $100/barrel, while spot prices for North Sea and Middle Eastern oil are approaching $120/barrel. Global onshore oil inventories re-entered a depletion phase in August and September, similar to the situation in April this year; considering the current lower inventory levels, the bank indicates that short-term crude oil premium elasticity is significant.(2) Looking ahead to the rest of the year, CICC believes oil prices may face “a supply floor below and a demand ceiling above”: On one hand, since the third quarter, the pace of crude oil recovery in the Middle East has fallen short of expectations, and recent geopolitical escalations will prompt the market to reassess the persistence of supply losses in the region, supporting a rise in the “supply floor”. On the other hand, endogenous demand remains weak, and the summer demand recovery should not be projected linearly; after oil prices breach $100, a “demand ceiling” may emerge.(3) In summary, CICC has raised its forecast for the Brent oil price average in the fourth quarter of 2026 to $85/barrel (previously forecasted as $80/barrel in June) to reflect a more sustained supply shortage and lower inventory levels. In the refined oil market, short-term price and freight increases are impacting Eurasian refining margins, with gasoline and other crack spreads facing pressure for a high-level pullback. By contrast, the bank suggests focusing on structurally tight overseas diesel markets and the resilience of diesel crack spreads.