A supply shock rippling through global energy markets is reshaping the outlook for oil prices and US producers, as disruptions at the Strait of Hormuz force a sharp rethink of supply, inventories and valuations, according to Bank of America.
The bank said it now expects Brent crude to average $77.50 per barrel in 2026, up from a prior forecast of $61, as an ongoing impasse in the key shipping route disrupts flows and reshapes supply expectations.
The revised forecast reflects two scenarios viewed as equally likely: a quicker resolution that normalizes flows by April and results in oil around $70 per barrel, and a more prolonged disruption extending into the second quarter that could push prices to $85.
A more extreme scenario, in which the conflict lasts into the second half of the year, could drive Brent as high as $130 per barrel, though Bank of America considers that outcome unlikely.
The bank said the halt in traffic through the Strait has already removed roughly 200 million barrels of crude from the global market, reversing about half of last year’s inventory build and shifting the narrative away from oversupply.
“Oil stockpiles are draining, and firming the fundamental outlook post-war,” the analysts wrote, adding that the tighter backdrop supports a higher long-term oil price assumption.
Reflecting this shift, Bank of America raised its mid-cycle Brent view to $70 per barrel from $65, aligning with current forward curves and signaling stronger post-conflict fundamentals.
Higher oil price assumptions are also driving a more constructive stance on US oil and gas equities. The bank increased price targets across its oil-levered E&P coverage by an average of 17%, citing improved cash flow expectations and valuation support.
Among large-cap names, Bank of America continues to prefer Diamondback Energy Inc (NASDAQ:FANG, XETRA:7DB) over peers such as EOG Resources Inc (NYSE:EOG) and ConocoPhillips (NYSE:COP, XETRA:YCP), even as it lifted its price objective on ConocoPhillips to $120 from $102. The bank said the higher oil outlook and a lower discount rate underpin the increase, but added that valuation metrics remain insufficient to warrant a rating upgrade.
Analysts see greater upside in mid-cap producers, highlighting Devon Energy Corp (NYSE:DVN, XETRA:DY6) and Ovintiv as key opportunities for re-rating. They pointed to Devon’s merger with Coterra Energy Inc (NYSE:CTRA) as creating a larger, higher-quality platform, while Ovintiv’s portfolio optimization and strong free cash flow generation position it as a top pick.
Bank of America also reiterated a Buy rating on California Resources Corp (NYSE:CRC), citing its capital-efficient outlook for 2026 and modest growth potential beyond that period.
Overall, the bank said the combination of supply disruptions, inventory drawdowns and stronger pricing is resetting the outlook for the oil and gas sector, supporting both commodity prices and equity valuations in the near term.