Oil Forecasts Spread Wide Toward Year End as the Regional Risk Premium Fades and Gulf Break-Even Prices Come Into Focus
Oil has given back most of the premium it built up during the spring’s regional tensions, and forecasters are now split over where it settles by the end of 2026, with much of the range sitting below the reference oil prices that Gulf governments need to balance their budgets. Brent crude traded around 72 dollars a barrel in early July, after one of its steepest monthly falls in years, and the question for the region has shifted from how high prices might spike to how much fiscal pressure a sustained move lower would bring.
The market backdrop explains the shift. Brent settled at 71.57 dollars a barrel on 1 July and was trading near 71.88 dollars on 6 July, according to exchange data reported by CNBC, after falling about 21 percent over June, its largest monthly drop since March 2020. That unwound the spring peak, when Brent had climbed toward 120 dollars, as tanker flows through the Strait of Hormuz recovered and the risk premium drained out of the price. Into that softening market, the seven OPEC Plus producers that are unwinding voluntary cuts, including Kuwait, agreed on 5 July to raise August output by a further 188,000 barrels a day, adding supply even as prices eased.
The forecasts for where Brent ends the year now span a wide range. At the bearish end, Citi Research said Brent could extend its decline to about 60 dollars a barrel by year-end, on a view that fundamentals are reasserting themselves as the Hormuz shock fades, shipping normalises and physical crude markets weaken, according to Bloomberg. Morgan Stanley trimmed its forecast to about 75 dollars for the second half of the year on the fast return of Gulf flows and soft Chinese demand, while Goldman Sachs cut its fourth-quarter forecast to about 80 dollars from 90. At the more constructive end, UBS argued that traders were overreacting and put Brent nearer 85 dollars at year-end. Fitch Ratings, for its part, has framed the spring spike as a temporary logistical shock rather than lost capacity, a view consistent with prices easing back as the strait stays open rather than a fresh glut. Taken together, the central tendency clusters in the 70s to low 80s, with a clear downside tail toward 60.
That range matters because of where it sits relative to the Gulf’s fiscal break-even oil prices, the reference oil price at which each government’s budget balances. On the International Monetary Fund’s estimates, Saudi Arabia’s fiscal break-even for 2026 is about 86.6 dollars a barrel and Kuwait’s about 76.7 dollars, while the United Arab Emirates sits far lower at about 45 dollars. One caveat matters when reading these against the forecasts: break-evens are annual-average reference prices, not year-end targets, so the comparison with a year-end Brent forecast is indicative rather than exact. Even so, the arithmetic is stark: even the more optimistic year-end calls of 80 to 85 dollars are at or below Saudi Arabia’s break-even, and the bulk of the range, from 60 to 75 dollars, sits below both Saudi Arabia’s and Kuwait’s. Only the UAE, with its low break-even, remains comfortable across the whole span of forecasts.
For Kuwait, that means a market settling in the 60s or low 70s would push the budget into deficit on the IMF’s break-even measure, since the country needs Brent near 77 dollars to balance. The important qualifier is capacity to absorb it: Kuwait carries very low public debt and holds some of the world’s largest sovereign assets through its wealth funds, so a period of lower prices is a question of drawing on buffers and pacing spending rather than of financing stress. It also sharpens the case for the fiscal tools Kuwait has been advancing, including the return of public borrowing through a debt law, which would let the state fund deficits in the market rather than run down reserves. Saudi Arabia, with the highest break-even of the three, leans on borrowing and on its sovereign fund to keep financing its investment programme, while the UAE is the least exposed of the major Gulf producers.
There is a caveat on the break-even figures themselves. The most recent comprehensive IMF estimates for Saudi Arabia and Kuwait date from its May 2025 regional outlook, with a fresher figure for the UAE from a late-2025 review, so the precise numbers will move as spending plans and production change. The direction, however, is not in doubt: a sustained move into the 60s would put most Gulf budgets into deficit, and the pace at which OPEC Plus is returning barrels adds to the downward pressure that the bank forecasts describe, since more supply into a soft market weighs on price even as it lifts volumes.
Why it matters: For Kuwait and its Gulf neighbours, the level of oil prices feeds directly into government revenue and therefore into budgets, and the spread of year-end forecasts now runs largely below the break-even prices that Saudi Arabia and Kuwait need. A market settling in the 60s to mid-70s would mean wider fiscal deficits for the higher-break-even producers, even if deep reserves and low debt mean Kuwait in particular can absorb it. The UAE, with a break-even near 45 dollars, stands out as the most insulated.
Outlook: The path from here turns on how quickly demand firms, how far OPEC Plus goes in returning barrels, and whether the Strait of Hormuz stays open and flows normal. If prices hold in the 70s, most Gulf budgets face manageable pressure; a sustained slide toward 60 would test the higher-break-even producers and bring fiscal buffers and borrowing plans to the fore. The next markers are the monthly OPEC Plus decision on 2 August, the major agencies’ oil-market reports due in mid-July, and the trajectory of Chinese demand.
Sources: CNBC; Bloomberg; Fitch Ratings; International Monetary Fund; OPEC.
