Citi Forecasts $60 Oil Amid Hormuz Normalization, Iran Deal Prospects

Citigroup analysts predict Brent crude prices could fall to $60-$65 per barrel by year-end, driven by an expected normalization of shipping traffic through the Strait of Hormuz and a potential U.S.-Iran agreement. The investment bank advises selling into any summer oil rallies, anticipating a significant price correction from current levels. The Strait of Hormuz, a critical chokepoint for global oil shipments, has recently been a source of geopolitical tension, contributing to elevated crude prices. Citi's assessment suggests a de-escalation of these tensions, leading to unimpeded passage for tankers and a reduction in supply risk premiums. Furthermore, the prospect of a U.S.-Iran deal, potentially involving a Memorandum of Understanding (MOU) evolving into a more comprehensive agreement, is a key factor in Citi's outlook. Such a deal could facilitate the return of Iranian oil to global markets, increasing supply and putting downward pressure on prices. While the exact timing and scope of an agreement remain uncertain, Citi believes the incentives for de-escalation outweigh other alternatives for both parties. This forecast, if realized, would have broad economic implications. Lower oil prices could provide significant relief to consumers through reduced fuel costs and temper inflationary pressures. For energy-importing nations, this translates to improved terms of trade and potentially stronger economic growth. Conversely, oil-exporting economies and energy companies would face revenue declines and pressure on profitability. The market's current pricing likely reflects some level of geopolitical risk, which Citi believes is set to dissipate.