Citi Research lifted its three-month Brent crude forecast by $5 to $60 per barrel but held its second-quarter and third-quarter averages at $62 and $63, respectively, still expecting a downward move as “probabilities skewing toward a US–Iran nuclear deal.”
The forecast marked a reversal from the previous week, when the bank had lowered its three-month forecast for Brent to $55 from $60 per barrel.
Citi warned that if diplomacy were to fail and tensions were to escalate over the Iran nuclear issue, Brent prices could move to above $70.
The rebound in crude followed wider risk on as U.S.-China tariffs were sharply cut for 90 days, Citi noted, pointing to bilateral levies falling from effective rates of 145% to about 30% on Chinese goods and a cut in China’s tariffs on U.S. goods from 125% to 10–15%, effective May 14.
Still, the bank warned that market complacency “could be short lived” amid looming U.S. fiscal strains and softening U.S. hard (quantifiable economic indicators) data.
Refiners are another pillar of near term support. “Residual fuel oil cracks remain elevated, bolstering hydroskimming margins worldwide,” Citi said, adding that stronger margins may spur run rate increases or hedging activity and temporarily underpin Brent.
On supply, Citi highlighted that OPEC+ surprising markets by agreeing to add 400,000 barrels per day (bpd) of output in June, pushed the group’s projected third-quarter surplus to nearly 600,000 bpd.
At the same time, OPEC+ phasing out its production cuts and political turmoil in Libya threaten light sweet crude oil exports, a mix that could widen the Brent Dubai Exchange for Swaps, the bank said.
Geopolitics dominate the downside narrative as Citi sees “a reasonable probability of a deal being done” between Washington and Iran, which could raise Iranian production to perhaps above 4 million bpd and release stored barrels.
A potential Istanbul meeting between Ukrainian President Volodymyr Zelenskiy and Russian President Vladimir Putin on May 15 also hangs over energy risk premia, the bank added.
Source: Reuters