Oil Market Insights from Enverus Report
Oil markets can be quite unpredictable. While news headlines may blow hot and cold, the underlying factors of supply, demand, and inventories have a way of establishing the real picture.
This is underscored by the latest Fundamental Edge report from Enverus Intelligence Research, titled “Let’s Make a Deal.” Traders may be caught up in the buzz surrounding peace deals and social media updates, but the report indicates that Brent crude is likely to settle around $110 per barrel in the latter half of 2026, and around $105 in 2027. This is quite the adjustment from their previous estimate of $95. The reasoning behind this upgrade? It’s rooted in something a bit more solid than the daily news: persistently low global inventories.
Enverus envisions a scenario where a peace agreement between the U.S. and Iran arrives by the end of June, potentially freeing up the Strait of Hormuz. At first glance, the market might overreact—peace could imply increased supply, right? However, it won’t be an immediate switch. Presently, flows sit at about 2 million barrels per day, and even in an optimistic scenario, they may gradually rise to 16 million by 2027, which is still below the pre-war levels of 20 million. Many rerouted barrels could remain in their new paths.
The consequence? Stocks within the OECD are significantly under pre-crisis volumes. According to Enverus’ long-term correlations between stock levels and prices, this supports the notion of Brent prices staying in the triple digits.
So, why is Brent currently in the low 90s? Al Salazar, who authored the report, succinctly pointed out during our chat that financial markets tend to be greatly influenced by headlines. Traders are understandably cautious about predicting a bullish market, fearing that any surge could provoke a negative tweet from high-profile figures. Yet, the fundamentals tell a different tale—low stock levels are dwindling further amid ongoing flow issues that won’t disappear overnight. Salazar emphasizes, “Even when you resolve the flow issue, you’re still stuck with low stocks,” which ultimately drives the argument for sustained higher prices.
This is a straightforward calculation, not mere conjecture. Enverus predicts that ongoing stock reductions will keep inventory levels thin as Persian Gulf supplies slowly come back. A minimal reduction in demand may help stabilize trends but won’t quickly replenish stocks. Additionally, strategic reserve refills will provide extra price support.
This situation is promising for U.S. producers. The report raises expectations for oil growth in the Lower 48 states to 300,000 barrels per day by the end of 2026 and 500,000 by the end of 2027. The Permian Basin is expected to lead the way. However, pipeline, processing, and takeaway capacity issues still exist. But as prices rise, activity is likely to increase. A consistently high Brent price could mean more rigs and more energy output from the U.S., which already shows signs of responsiveness with a more than 10% rise in active drilling rigs since March.
On the flip side, for U.S. consumers, Salazar mentions a Brent price between $100 and $110 could translate to regular gasoline prices around $5. This level could set off economic chain reactions, described in the “Five-five-five” rule: $5 gas leads to 5% inflation, hitting stock markets and Treasury yields. We last witnessed this during the turmoil in 2022 triggered by the Ukraine invasion; shocks in energy prices can ripple through both equities and bonds.
Energy markets can operate efficiently when given the chance, yet even if a deal materializes, it will take time to achieve normalization—likely extending into 2027 and beyond. Inventories won’t rebuild overnight. Demand, though somewhat flexible, remains robust globally. And while U.S. supply is on the rise, it faces real constraints due to years of neglect in midstream investments and the inherent slow pace of drilling.
The approach taken during the Trump administration—prioritizing American production, realistic diplomacy, and avoiding self-inflicted wounds like endless sanctions without any form of compensation—aligns well with this outlook. Encouraging domestic supply while navigating agreements that can open market routes without overwhelming supply is smart policy, aiming to avert both shortages and market crashes.
Energy markets faced distortions during the Biden years due to extreme focus on net-zero ambitions, incentivized intermittent energy sources, and regulatory pushback. This report highlights that hydrocarbons continue to be foundational for global economic growth. The persistence of low inventories and gradual supply responses reflect market realities. A Brent price around $110 sends a clear signal that can’t be easily dismissed.
American producers are in a favorable position to capitalize on this, but consumers will likely feel the strain at the gas station. However, this emphasizes the necessity for more domestic oil production, not less. Policymakers should take note: the market landscape suggests higher prices for a while, and misguided policy actions will only exacerbate economic difficulties.
