Citi analysts continue to see upside for oil prices after fading expectations for a near-term U.S.-Iran agreement helped Brent crude rebound from recent lows around $91 per barrel.
The recovery in prices comes as geopolitical tensions remain elevated across the Middle East. Recent military actions involving Iran and U.S. forces near the Strait of Hormuz have reinforced concerns that regional stability remains fragile despite ongoing ceasefire efforts.
Talks between Washington and Tehran remain stalled, with negotiators divided over several key issues, including access through the Strait of Hormuz, Iran’s enriched uranium reserves and the role of Lebanon in any broader diplomatic settlement.
While a renewed ceasefire between Israel and Lebanon has eased some immediate concerns and helped prevent a sharper rise in energy prices, Citi believes a comprehensive agreement could still take considerable time to materialize.
Under the bank’s central scenario, shipping activity through the Strait gradually recovers during the third quarter. However, depleted stockpiles and the lengthy process of rebuilding inventories are expected to continue supporting crude prices.
Citi forecasts Brent crude will average $110 per barrel during the third quarter before moderating to $90 in the fourth quarter and eventually easing toward $80 in 2027. The bank also expects the market’s backwardated structure to remain intact.
The bullish view is driven less by total global inventories and more by where those inventories are located. According to Citi, stock levels in several key consuming regions, particularly Asia outside China, have already fallen below historical norms.
“Continued stock draws will take levels to recently unprecedented lows, causing a scramble to pull from better supplied areas, and strong backwardation to persist to replenish low stocks even after Strait reopening,” the analysts wrote.
The bank noted that the physical oil market has so far been supported by two temporary factors: weaker Chinese crude imports and large-scale releases from strategic reserves coordinated by the International Energy Agency.
China’s imports declined by roughly 4.3 million barrels per day between February and May, while emergency stock releases contributed around 3.3 million barrels per day during April and May.
Once those emergency supplies are exhausted, Citi expects tighter market conditions to become increasingly apparent.
Inventories of refined products remain particularly tight. Stocks of diesel, gasoline and fuel oil are already sitting near the lower end of historical ranges, helping maintain strong refinery profitability despite fluctuations in crude prices.
The International Energy Agency recently warned that if current inventory drawdowns continue, global stockpiles could approach critically low levels just as seasonal summer demand reaches its peak.
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