Citi expects oil prices to fall to $60 as the situation in the Strait of Hormuz returns to normal

Citigroup forecasts that the price of Brent crude could fall to $60 per barrel by the end of the year as shipping traffic through the Strait of Hormuz returns to normal. This forecast adds to a series of “bearish” expectations regarding the global commodities market, according to Bloomberg.

Citigroup analysts recommend taking profits on oil during any summer rallies, as they expect the price of Brent to fall to $60–65 per barrel by the end of the year, according to Bloomberg. As of Friday, July 3, the price is holding steady at $71.92. Brent has not fallen below the psychological threshold of $60 since January.

The resumption of shipping through the Strait of Hormuz boosted short-term supplies, providing refineries with additional volumes of feedstock, Bloomberg explains. This led to a drop in prices: in the second quarter, the price of Brent plummeted by 30%, completely erasing all the gains made during the period of conflict between the U.S. and Iran.

“Fundamental market factors are quickly regaining ground,” noted Citigroup analysts. “Maritime shipping flows are returning to normal, Chinese buyers are still absent from the market, physical crude oil markets have weakened sharply, and inventories have declined much less than expected.”

Tehran and Washington have signed a memorandum of understanding to suspend hostilities, and both sides are working toward a permanent agreement. “We expect the memorandum to remain in effect and evolve into a full-fledged deal in the coming months, as the incentives for de-escalation outweigh the alternatives for both the U.S. and Iran, as well as for most of the Middle East,” Citi noted.

The initial phase of the oil market’s recovery is expected to “be turbulent, as shipping routes are only just returning to normal, insurance markets are adapting, and lingering logistical issues are still being resolved,” the experts added. “However, the return to organized navigation patterns and rising shipping volumes suggest that commercial operators are increasingly viewing the risks as manageable rather than insurmountable,” they write.

Other major investment banks also share the “bearish” sentiment in the market, according to Bloomberg . Goldman Sachs stated that the global oil market will return to a state of oversupply as soon as traffic through the Strait of Hormuz fully resumes. Against this backdrop, the bank lowered its fourth-quarter Brent price forecast to $80 per barrel in mid-June (down from a previous forecast of $90), anticipating that crude oil supplies would normalize by the end of July.

For its part, Morgan Stanley lowered its oil price forecasts twice in June, also signaling the risks of a supply glut. According to the bank’s forecast, the price of Dated Brent—which serves as the benchmark for the physical market—will average $90 per barrel in the third quarter (down from the previous estimate of $100) and will fall to $80 in the final three months of the year.

This article was AI-translated and verified by a human editor