Citigroup Raises Oil Price Forecasts

Investing.com – Citigroup has lifted its bull case for oil prices after assessing historical risk events, given the potential for supply disruption in the Middle East.

The US bank keeps its baseline forecast for $74/bbl Brent in the fourth quarter of this year and $65/bbl during the first quarter of 2025, with an indicative probability of 60%, owing to weak underlying oil market fundamentals.

However, Citi has lifted its bull case scenario for oil prices for the 4Q’24 and 1Q’25 to $120/bbl from $80/bbl, increasing its indicative probability to 20%, up from 10%, due to heightened potential of supply losses.

A recent analog for the potential escalation in the Middle East is the Russia-Ukraine conflict in Feb’22, during which Brent oil rallied to average $116/bbl in 2Q’22, the bank said.

“Our new bull case scenario is based on supply fears and disruptions similar to those of 2022,” analysts at Citi stated in a note dated Oct. 14.

Losses from escalation could include:
– Attack on a refinery disrupting crude supplies (0.1-0.7 million barrels per day)
– Loss of most of Iran’s crude oil exports (around 1.5m b/d)
– Various impacts on oil flows through the Strait of Hormuz (up to 20m b/d), though this latter scenario is seen as highly unlikely.

Supply losses could also stem from Iranian responses targeting regional energy assets.

“In our bull case scenario, we model higher actual disruptions than during Russia-Ukraine; however, higher spare capacity levels and a weakening demand may lead to a similar price response,” Citi added.

The bank’s bear scenario includes OPEC+ raising production starting in December and reduced oil supply risks, leading to prices at $60/bbl for the 4Q’24 and $55/bbl in 1Q’25, with an indicative probability of 20%, down from 30%.

At 05:50 ET (09:50 GMT), Brent traded 4.9% lower at $73.66 a barrel.