BofA: Oil - FJElite

A further rise in oil and oil products is not a foregone conclusion. In the near term, it will depend mainly on duration and intensity of conflicts in Ukraine and Middle East. After the US elections, markets priced a higher chance of resolving the Iran conflict, but time will tell. As the Brookings Institute warned in a May 2026 piece, a crude supply shortfall due to restricted flows out of Gulf producers has led to a decline in commercial and sovereign crude buffers worldwide. The exact decline is difficult to measure as buffers are not fully visible, but the US Energy Information Administration estimates a roughly 500mn barrel decline YTD. While existing global buffer capacity is also not known precisely, a rough working estimate of 1,5bn barrels is reasonable. If buffers fall sufficiently, the Brookings piece argues that crude price increases could accelerate.

Global refinery capacity has also been reduced from both conflicts, as Iran has targeted Gulf refineries and Ukraine has targeted Russian refineries. This helped diesel prices rise 76% this year from an average of $3.5/gallon to $6.25. The International Energy Agency estimates that Ukraine reduced total Russian refinery throughput by about 30%, resulting in about 2% reduction in global refinery throughput. In October, Ukraine leadership said it intends to continue refinery attacks. Energy analysts estimate Iran has reduced Gulf refinery throughput also by around 2% of global supply. It is unknown whether these conflicts will soon resolve, but our analysis indicates that if energy prices rise, rates will too. We think the downside/upside is asymmetric: Fed can remain on hold in the most dovish scenario, but may seek unknown "restrictive" territory in the most hawkish scenario.