Brent crude oil prices are facing further downward pressure, with bank analysts forecasting a potential drop to $60 per barrel within the year.
Citigroup projected in a research report on Friday that Brent crude will decline to a range of $60 to $65 per barrel by year-end as the situation around the Strait of Hormuz normalizes. The bank advised traders to sell into any price rallies during the summer season. Concurrently, Goldman Sachs and Morgan Stanley have also lowered their oil price forecasts, with a bearish consensus gathering among major Wall Street institutions.
Analysts at Citigroup, including Francesco Martoccia, wrote in the report: "Fundamentals are rapidly reasserting dominance in the market. Shipping flows are normalizing, the physical crude market has weakened significantly, and inventory draws are much lower than expected."
Brent crude was trading around $71.57 per barrel on Friday, representing a significant retreat from its peak of over $126 per barrel reached on April 30, which was the highest level since 2022. The January futures contract is priced around $73, indicating that Citigroup's forecast implies considerable downside from current market pricing.
Ceasefire Deal Expected to Hold, Risk Premium Unwinding Drives Price Drop
The core premise of Citigroup's bearish outlook is the expected continuation of the US-Iran ceasefire agreement. Following the signing of a Memorandum of Understanding (MOU) between the US and Iran in mid-June, which announced a pause in hostilities, Brent crude prices have largely remained below $80 per barrel.
The Citigroup analysts noted in the report that while brief frictions may occur, both sides have strong incentives to uphold the agreement. "We expect the MOU to hold and be formalized into an agreement in the coming months, as the incentives for de-escalation for the US, Iran, and much of the Middle East far outweigh those for confrontation," they wrote.
The report added, "Both the US and Iran are showing genuine conflict fatigue, and Lebanon, a potential flashpoint, is also being increasingly constrained by a broader US preference for de-escalation."
Hormuz Shipping Recovers, Supply Pressures Rebuild
The Strait of Hormuz is a critical chokepoint for Persian Gulf oil producers to access global markets. According to data cited by Citigroup analysts, crude flows through the Strait, which had suffered a dual blockade during the conflict, have now recovered to 7 million barrels per day, compared to a pre-conflict level of 15 million barrels per day.
The analysts also pointed out that actual shipping volumes may be higher than official data suggests, as many vessels have turned off their AIS transponders for security reasons. Citigroup described the current transitional phase in its report as "likely to be noisy," with shipping routes, insurance markets, and logistical bottlenecks still adjusting. However, it emphasized that "the return of organized shipping patterns and rising flows suggest commercial operators increasingly view the current risk environment as manageable rather than insurmountable."
Reports indicate that several major European nations have now accepted that vessels transiting the Strait of Hormuz will be required to pay fees to Iran and Oman.
Multiple Institutions Turn Bearish, Market Balance Tilts Towards Surplus
Citigroup's pessimistic forecast is not isolated, as other major institutions are also revising their outlooks downward. Goldman Sachs lowered its year-end Brent crude forecast to $80 per barrel in mid-June. The bank's commodities team also noted that Persian Gulf crude flows could recover to pre-war levels by early July, anticipating that the global oil market will return to a surplus as the impact of the Iran war fades and Hormuz flows recover. Morgan Stanley has cut its oil price forecast twice in recent weeks, highlighting supply surplus risks.
However, Goldman Sachs analysts appear more cautious than Citigroup regarding Iran's willingness to maintain the ceasefire.
Citigroup analysts concluded that, with supply recovery and weak demand acting in concert, "fundamentals are rapidly reasserting dominance in the market." Brent crude has fallen approximately 30% in the second quarter, erasing all gains made during the conflict period.
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