Introduction#
Citigroup has updated its oil price forecasts, urging investors to consider near-term investments in crude oil. This change comes as disruptions in the Strait of Hormuz continue and diplomatic talks between the United States and Iran show little promise of resolution.
New Price Targets#
The bank now anticipates that Brent crude oil will reach $120 per barrel in the next three months. Additionally, it has revised its average quarterly price estimates for 2026 to $110, $95, and $80 per barrel for the second, third, and fourth quarters, respectively. These figures are higher than previous estimates of $95, $80, and $75.
Factors Influencing Prices#
Citi analysts, led by Maximilian Layton, suggest that investors should consider short-term oil exposure as a strategy to mitigate risks associated with ongoing disruptions. They assign a 50% probability to their base case, which assumes that the Strait of Hormuz will start to reopen by the end of May, later than previously expected. The analysts believe that the Iranian government has reasons to keep the Strait closed, which could lead to tighter global oil supply and higher prices.
Potential Scenarios#
The current stalemate has already led to a 3% increase in Brent futures, now trading at $108.5 per barrel. In a more optimistic scenario, Citi predicts that Brent could reach $150 per barrel if disruptions continue through June. They also outline a more extreme scenario where significant damage to energy infrastructure could push prices to between $160 and $180 per barrel.
Conclusion#
Citi estimates that around 500 million barrels of oil supply have been lost since the conflict began, with potential total losses reaching 1.3 billion barrels if disruptions persist. Despite these challenges, the bank notes that oil prices and other risk assets have not reacted as sharply due to prior inventory builds and strategic stock releases. They also highlight that lower oil consumption relative to GDP in the U.S. has helped cushion the economic impact so far.