Citi Sees Possibility of $120 Oil if Supplies Are Disrupted
The bull-case scenario is based on the risk of an escalation of the conflict between Israel and Iran
Crude oil prices could go into triple digits if supplies are disrupted by conflict in the Middle East, despite weak market fundamentals, analysts at Citi Research said Monday in a report.
Citi said its base case is still for international benchmark Brent to average $74 a barrel in the fourth quarter and $65 a barrel in the first quarter of 2025, “owing to weak underlying oil market fundamentals.”
But analysts increased their bull-case estimate to $120 from $80 a barrel for the fourth quarter and first quarter of next year, while assigning such an outcome a probability of 20%, up from 10% previously.
“Our new bull case scenario is based on supply fears and disruptions similar in magnitude and duration to that which occurred during 2022,” Citi said, referring to the Russian invasion of Ukraine which caused a spike in oil prices. Actual supply losses at that time peaked at less than 1 million barrels a day, well below expectations of losses between 2 million and 3 million barrels a day, Citi said.
Although disruptions from an escalation in the current conflict between Israel and Iran could be higher than at the outbreak of the Russia-Ukraine conflict, “higher levels of spare capacity and stock levels, and a weakening demand environment, may mean a similar price response,” Citi added.
Citi’s bear-case scenario, which includes OPEC+ starting to raise production in December and a decline in supply risks, sees Brent at $60 a barrel in the fourth quarter and $55 in the first quarter of 2025.
Current risks include an Israeli strike on Iranian oil infrastructure or effects on oil flows through the Strait of Hormuz, Citi said, adding that it sees the latter event as highly unlikely. “Supply losses might also come from any response by Iran that targets regional energy assets,” Citi added.
The heightened tension with the market awaiting Israel’s response to Iran’s Oct. 1 missile attack has sent crude prices higher, although the increased risk premium has been offset by continuing concerns about weakening global demand, particularly from China. Oil prices were lower Monday after the Chinese government at the weekend offered few details of its economic stimulus plan, and OPEC cut its oil demand growth estimates for this year and 2025.