Unicredit also have a note out on the oil market this morning, in which they warn:
The Iran war has triggered one of the largest disruptions to physical oil supply in modern history. While de‑escalation could ease some geopolitical risk premiums, the damage to production, exports and logistics means markets are unlikely to quickly return to pre‑war conditions.
Goldman Sachs raises oil price forecast as war disruption hits production
The deadlock in the Middle East confict has prompted Goldman Sachs to raise its oil price forecast.
Goldman Sachs now estimate that Brent crude will trade around $90 a barrrel in the last quarter of this year, up from an earlier projection of $80. US crude is forecast to average $83 in October-December, up from $75 before.
Goldman blames “lower Persian Gulf production” for the upgrade, telling clients:
We now assume a normalization in Gulf exports by end-June (vs. mid-May prior) and a slower Gulf production recovery. The economic risks are larger than our crude base case alone suggests because of the net upside risks to oil prices, unusually high refined product prices, products shortages risks, and the unprecedented scale of the shock.
Goldman’s analysts estimate that 14.5m barrels a day of Persian Gulf crude production has been lost, leading to a record drawdown of global oil inventories of 11-12m barrels a day this month.
The jump in oil prices will lead to ‘softer demand’, they explain:
We assume that global oil demand falls on a year-over-year basis by 1.7mb/d in 2026Q2 and 0.1mb/d in 2026 given the jump in refined product prices. Because extreme inventory draws are not sustainable, even sharper demand losses could be required if the supply shock persists longer.
Goldman also warns that the risks to its forecasts are to the upsides, and lay out three scenarios for how events could unfold:
Adverse scenario: Brent 2026Q4 would average just over $100 assuming Gulf exports only normalize by end-July.
Severely adverse scenario: Brent 2026Q4 would average at nearly $120 assuming Gulf exports normalize by end-July and 2.5mb/d of persistent reduction to Gulf capacity. This 2.5mb/d of scarring is equivalent to Hormuz flows not recovering above 70% (till pipeline capacity is expanded).
Benign scenario: Brent 2026Q4 would average just under $80 assuming Gulf exports normalize by mid-June, no capacity reduction, and stronger US and core OPEC supply responses.
[Goldman had previously trimmed their forecast for the oil price earlier this month, after the US-Iran ceasefire was announced]
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Supermarket chain J Sainsbury are the top faller on the FTSE 100 in early trading, after a broker downgrade.
Goldman Sachs have cut their rating in Sainsbury’s from ‘buy’ to ‘sell’, lowering their share price forecast to 335p from 390p.
In response, Sainsbury’s shares are down 3.4% to 333p.
European stock markets have opened modestly higher, as investors try to assess the situation in the Middle East.
Axios’s report that Iran has given the US a new proposal to reopen the Strait of Hormuz may have brightened the mood a little.
Germany’s Dax index is up 0.4% in early trading, with France’s CAC 40 up 0.25%.
The UK’s FTSE 100 index is flat, though.
This week is going to be extremely busy for financial news.
Jim Reid, market strategist at Deutsche Bank, explains:
Looking ahead, with central bank meetings for every G7 country this week — alongside 44% of the S&P 500 reporting by market capitalisation, including five of the Mag 7 — it is shaping up to be a blockbuster week, even before factoring in ongoing Iranian war newsflow.
The Bank of Japan meets tomorrow, followed by the Fed and the Bank of Canada on Wednesday. Thursday then brings decisions from the ECB and the Bank of England. All are expected to remain on hold, but the key question will be how each central bank’s reaction function is shaped by the conflict and the associated stagflation risks.
European gas prices are rising a little at the start of trading.
The month-ahead UK gas contract is up 0.8% at 112.8p a therm – up from 80p before the Iran war began but below the high of 180p hit in mid-March.
Continential European gas is up a similar amount; the next-month Dutch TTF Natural Gas Futures contract has risen to €45.21 a megawatt hour.
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Japan's Nikkei hits record high over 60,000 points on peace talk hopes
Hopes of a breakthrough to end the Middle East conflict have pushed Japan’s stock market to a new record high.
The Nikkei 225 index has ended the day at a new closing high, up almost 1.4% to hit 60,537 points.
Stocks jumped after Axios reported that Iran has given the US a new proposal to end their war, which helped to calm nerves after President Trump cancelled his envoys’ trip to Pakistan for peace talks.
Ipek Ozkardeskaya, senior analyst at Swissquote, says:
The mood is slightly better this morning than it was into the weekend, as Iran reportedly offered the US a proposal to reopen the strait of Hormuz — a move that could pave the way for the continuation of peace talks between the two parties.
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Predicted house price growth in UK halved due to Middle East conflict
UK estate agent Knight Frank has halved its house price growth predictions for this year, citing the economic shocks caused by the Iran conflict.
Knight Frank now expects UK house price growth of 1.5% this year, down from a forecast of 3% last September. Growth is then expected to rise to 3% in 2027, down from 4% before.
Tom Bill, head of UK residential research at Knight Frank, says:
The Middle East conflict has pushed mortgage rates higher, dampened buyer sentiment and fuelled speculation about how the government will respond to the resulting economic shock.
This hat-trick of headwinds means we have revised down our near-term house price forecasts.
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Oil at three-week high as US-Iran peace talks stall
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The new week begins with the oil price rising, again, as the stalled US-Iran peace talks threaten to extend disruption to crude supplies from the Middle East.
Brent crude has jumped about 2% this morning to a high of $107.97 a barrel, the highest level since the two sides agreed a ceasefire on 7 April.
Prices rose after Donald Trump cancelled his plan to send US envoys Steve Witkoff and Jared Kushner for ceasefire talks in Pakistan on Saturday, saying “too much time” has been “wasted on travelling”.
The US president then doubled down on this position, telling Fox News:
“If they want to talk, they can come to us, or they can call us. You know, there is a telephone. We have nice, secure lines.”
However, there are signs of positive developments... Axios are reporting that Tehran has given the US a new proposal to reopen the strait of Hormuz, and end the war, with nuclear negotiations postponed for a later date.
So, geopolitics will continue to dominate the markets, at the start of a big week, with several big central banks taking interest rates decisions in the days ahead.
As Mohit Kumar, economist at Jefferies, explains:
Talks have stalled between US and Iran as Iran has stated that it will not negotiate till the US blockade remains in place, while US has stated that it doesn’t know who it is negotiating with.
Our base case remains that we are moving towards a deal but tail risk of short term escalation remains. It is not in the interest of either parties to escalate further. The latest Iran proposal shows the wiliness of Iran to negotiate, while Trump already wants a deal. Hence, we believe that we will eventually move towards a deal, but with some speed bumps along the way.
The agenda
11am BST: CBI distributive trades survey of UK retail
3.30pm BST: Dallas Fed manufacturing index survey
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