Oil & Rates Shift Suggest UAE Rotation, but Saudi Micro Still Compelling

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Oil & Rates Shift Suggest UAE Rotation, but Saudi Micro Still Compelling

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Lower oil, hawkish Fed Forecast

The MOU between the US and Iran potentially marks a turning point in the geopolitical

backdrop. Our commodities strategist Martijn Rats has adjusted his oil price forecast,

cutting it by 10% for 3Q26 to $90/bbl, and by 15% for 4Q26 to $80/bbl. Meanwhile, while

our base case is for the Fed to hold rates throughout 2026, the futures markets are

increasingly pricing a rate hike, reflecting a more hawkish stance under the new Fed chair.

Exhibit 1: Fed Funds Implied Rate; Fed Funds Futures suggest that the market is

pricing in at least one rate hike this year

4.20%

4.10%

4.00%

3.90%

3.80%

3.70%

3.60%

3.50%

29-Jul-26 16-Sep-26 28-Oct-26 09-Dec-26 27-Jan-27 17-Mar-27 28-Apr-27 09-Jun-27 28-Jul-27 15-Sep-27

Source: Bloomberg

Saudi vs. UAE: macro divergence

New oil price forecasts remain well above pre-conflict levels, preserving Saudi Arabia’s

fiscal buffers despite the recent moderation in spot prices and forecast. Though the fiscal

break-even oil price is around $90/bbl in 2025, in incremental terms the oil price is above

where the year began, suggesting most forecasts should remain better than earlier in the

year. Additionally, during the period of closure from the Strait of Hormuz, tracking data

show that Saudi was able to capture a higher oil price for the oil that they were able to

export, helping offset the volume decline through prices. Further, it is worth noting that

the potential of earlier normalization flow through the Strait of Hormuz is in fact an

upside risk to our fiscal revenue forecast, despite the moderation in oil price forecasts. For

instance, if Saudi oil exports normalize to pre-conflict levels of ~7mb/d in August