Citi Research has recently revised its outlook for oil prices, increasing its bullish forecast for the fourth quarter of 2024 and the first quarter of 2025. The bank now envisions a potential price of $120 per barrel due to escalating geopolitical tensions in the Middle East that could lead to supply disruptions. This adjustment signifies a considerable increase from the previous estimate of $80 per barrel. Despite this bullish scenario, Citi maintains a baseline forecast of $74 per barrel for Brent crude in the fourth quarter of 2024 and $65 for the first quarter of 2025, driven by concerns over weak fundamental trends in the oil market.
While the bank raised its optimistic outlook, it is mindful of underlying market conditions. Citi’s baseline forecasts suggest a cautious position, reflecting concerns about weak oil demand and economic headwinds affecting oil consumption. The firm’s analysis implies that while the potential for higher prices exists, it remains contingent upon significant geopolitical developments and the ability of OPEC+ to manage production levels effectively. This cautious outlook is supported by their bear case scenario, which projects a price of $60 per barrel for the fourth quarter of 2024 and $55 for the first quarter of 2025, should OPEC+ decide to increase production and supply risks diminish.
The current market situation shows Brent crude futures trading at approximately $77 per barrel, while U.S. West Texas Intermediate crude futures are at around $74 per barrel. This indicates some stability in pricing, although it is coupled with the potential for volatility as geopolitical tension unfolds. According to Citi, historical patterns suggest that geopolitical pressures impacting oil supply typically do not last for more than a few quarters, hinting at a potential easing of prices if geopolitical risks do not materialize into long-term disruptions.
Citi’s analysis incorporated a review of significant geopolitical risk events since the 1950s, aiming to contextualize the current situation within historical trends. The assessment highlights that while short-term fears can drive prices up, the impact of such events usually diminishes over time. The adjustment to their bullish scenario indicates an acknowledgment of these historical patterns, suggesting that while immediate risks may elevate prices, long-term supply recovery may stabilize markets.
Moreover, the report underscores the importance of OPEC+ actions in determining future oil prices. If the organization chooses to increase production as planned, it could provide relief to the oversupplied market, further solidifying the bearish price forecast. Conversely, a sustained conflict that disrupts oil flows in the Middle East could lead to prolonged price hikes. As the market braces for potential volatility, stakeholders are urged to stay attuned to geopolitical developments that could significantly influence oil supply and pricing dynamics.
In conclusion, Citi Research’s updated forecasts reflect both the potential for heightened oil prices amid geopolitical risks and the underlying caution informed by weak market fundamentals. The firm’s differentiated scenarios elucidate the balance between bullish outlooks driven by external factors and the reality of market dynamics that often lead to corrections. As we move forward, close attention to geopolitical developments and OPEC+ strategies will be imperative for accurately predicting oil price trajectories in the coming quarters.
