Citi Raises Oil Forecasts Amid US–Iran Tensions
Citigroup has upgraded its oil price outlook and is encouraging investors to increase short-term exposure to crude. The move reflects ongoing disruptions in shipments through the Strait of Hormuz and fading expectations of a near-term diplomatic breakthrough between the United States and Iran.
Updated Oil Price Targets
The bank now expects Brent crude to reach $120 per barrel within the next zero to three months. It has also revised its quarterly projections higher, forecasting average prices of $110 for Q2 2026, $95 for Q3, and $80 for Q4. These figures represent a notable increase from earlier estimates of $95, $80, and $75, respectively.
Base Case Scenario and Market Outlook
Citi assigns a 50% probability to its base case, which assumes that disruptions in the Strait of Hormuz will begin easing by the end of May—later than previously anticipated. Analysts, led by Maximilian Layton, recommend positioning in near-dated oil contracts both as a direct investment and as a hedge against prolonged supply constraints.
Iran Strategy and Market Impact
The bank describes Iran’s strategic approach using a “Deterrence, Oil revenue, and Vengeance” framework, suggesting strong incentives for maintaining pressure on global oil flows. According to Citi, continued disruption would tighten supply, accelerate inventory drawdowns, and drive prices significantly higher.
While this situation is not expected to persist indefinitely, analysts believe it could last at least another month under the base scenario—and potentially through June in a more bullish outcome.
Oil Prices React to Geopolitical Risks
Oil markets have already begun responding. Brent crude futures rose 3% on Monday, reaching $108.5 per barrel as tensions remain unresolved.
Bull and Super-Bull Scenarios
Under its bullish scenario, which carries a 30% probability, Citi projects Brent crude could climb to $150 per barrel if disruptions extend through June. In this case, quarterly averages would rise to $130 for both Q2 and Q3, before easing to $100 in Q4.
An even more extreme “super-bull” case envisions prolonged disruptions or damage to energy infrastructure, potentially pushing oil prices into the $160–$180 range for an extended period.
Supply Losses and Inventory Decline
Citi estimates that approximately 500 million barrels of oil supply have already been lost since the conflict began. If disruptions persist through May, total losses could reach 1.3 billion barrels. Under this scenario, global inventories are expected to fall to their lowest levels in more than a decade by late July.
Why Markets Haven’t Reacted More Sharply
Despite rising oil prices, broader financial markets have remained relatively stable. Citi attributes this to several factors, including a prior build-up of around 800 million barrels in global inventories, strategic stock releases by the International Energy Agency, and investor expectations of a relatively quick resolution.
Additionally, lower oil dependence relative to GDP—especially in the United States—has helped soften the macroeconomic impact so far.
Bear Case Still in Play
Citi’s previous base scenario, which assumed a swift diplomatic agreement, has now been downgraded to a bearish case with a 20% probability. In this outcome, Brent crude would average $95, $80, and $75 per barrel across the second, third, and fourth quarters of 2026.
