Oil prices recorded their largest single-day rise since March 2022 on Friday, fueled by escalating tensions between Israel and Iran that raised fears of potential disruptions to crude supply from the Middle East. However, analysts at Citi believe the rally was primarily the result of short-covering, with limited prospects for sustained gains unless the conflict expands or Israel targets Iran’s oil infrastructure.
Citi analysts noted that if the Israeli airstrikes prompted a complete exit of short positions—estimated at around 187,000 contracts—the resulting price surge could have been roughly $14 per barrel. Still, they don’t anticipate a repeat of such a rally without further escalation. “We do not expect a further short-covering rally in meaningful size,” their note stated.
Brent crude briefly hit $78.50 a barrel following the Israeli offensive before closing lower. Citi doubts that the conflict will significantly affect oil supply flows, and they expect prices to ease in the absence of major disruptions. “While geopolitical tensions may persist, we don’t foresee energy prices remaining elevated for an extended period,” the analysts added.
According to Israel’s military, the latest strike targeted a nuclear facility near Isfahan, damaging infrastructure used for reconverting enriched uranium—an essential part of nuclear weapons development. The Israeli Defense Forces confirmed that fighter jets hit facilities involved in metallic uranium production and related laboratories, roughly 350 kilometers from Tehran.
This strike came after Iran launched a barrage of missiles in retaliation for earlier Israeli attacks. Israeli Defense Minister Israel Katz accused Iran of crossing “red lines” by striking civilian areas and pledged continued military action to ensure the Iranian regime “pays a very heavy price.”
Despite the rising tensions, Citi believes oil’s rally won’t be sustained unless new developments directly impact energy infrastructure. The surge, they argue, was largely driven by short sellers exiting positions, and additional gains would require new long positions or a material escalation in the conflict.
“The market remains focused on any further military responses from Israel or Iran and whether future actions will involve critical energy facilities,” Citi concluded.
