By Teresa Rivas

What a difference a few months -- and a war -- make.

Oil had been on a downswing in recent years, with crude beginning 2026 at less than half its 2022 highs; at the start of the year, investors were concerned that the commodity would see further declines.

Of course, global events changed all that. Tensions had been rising with Iran even before the U.S.-Israel strikes kicked off the Third Gulf War at the end of February, and the U.S. intervention in oil-rich Venezuela happened just a few days into the year. Likewise, the predicted excess buildup of global inventories was less like a glut and more like a trickle.

Although Mizuho analyst Nitin Kumar was more bullish than the consensus on oil at the start of the year, the war with Iran has pushed up prices even beyond his previous estimates. That leads him to raise his 2026 Brent and West Texas Intermediate estimates in the low- to midteens range, to $73.25 and $68.25 per barrel, respectively. Brent for May delivery closed at a record of $103.42 on Tuesday, while WTI for April delivery rose to $96.21.

"It is too early in our view to say whether this conflict raises the structural price of global oil, but the bias is likely higher -- which keeps us positive on the U.S. Oil & Gas sector," he writes.

Like others, Kumar cites the continuing restrictions in the Strait of Hormuz as the main sticking point -- conflicting information from varying sources and reports of only some tankers making it through are not ideal conditions for a waterway that carries oil equivalent to some 20% of daily global demand.

Yet he warns that there are other factors at play. While Saudi Arabia and the United Arab Emirates have been able to bypass the Strait using their own infrastructure, those too could come under attack. Likewise, because oil from key Organization of the Petroleum Exporting Countries members Saudi Arabia, U.A.E., Iraq and Kuwait could be affected, that means global markets can't count on OPEC spare capacity acting as a buffer to higher oil prices as it has done in the past.

That means a worst-case scenario would see petroleum output from the Middle East as a whole drop by another 8 million barrels per day, Kumar estimates: "This is not our base case -- but a downside scenario to keep in mind if the situation worsens over the coming days/weeks."

He thinks it's more likely, however, that oil prices will remain high in the first quarter, edging lower on any signs of an end to hostilities, before possibly dropping -- with Brent around $75 a barrel -- in the summer "as the situation defuses," and aided by releases of strategic petroleum reserves by the U.S. and Japan.

"But with less inventory than previously expected, a potential for accelerated demand as strategic reserves are replenished, and the possibility of a higher risk premium for petroleum products we would look for crude prices to recover towards our mid-cycle view of $75/70 per barrel Brent/WTI by year-end 2026 -- or approximately six months before our pre-war expectation," he concludes.

Of course, plenty of oil stocks have already reacted to the new outlook for oil: Exxon Mobil, Chevron, and ConocoPhillips are all up by roughly a third since the start of the year. Therefore Kumar suggests looking for "underappreciated value" in the sector. His top picks are Devon Energy, Diamondback Energy, and Permian Resources; the first two are both up less than 30% this year, meaning they haven't appreciated as much as their peers. Honorable mentions go to Occidental Petroleum, Ovintiv, and California Resources.

The State Street Energy Select Sector SPDR exchange-traded fund is up more than 30% since the start of the year, while the S&P 500 is still in the red. All three major indexes are lower since the start of 2026 and have recently tracked oil price moves closely.

Write to Teresa Rivas at teresa.rivas@barrons.com

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March 17, 2026 15:19 ET (19:19 GMT)

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