Citigroup has raised its near-term oil price outlook and is advising investors to position for higher crude prices in the coming months, stressing continued interruptions to shipments through the Strait of Hormuz and the low likelihood of an immediate diplomatic resolution between the United States and Iran.
In its updated set of forecasts, the bank now projects Brent crude at $120 per barrel over the next zero to three months. It has also lifted its average quarterly Brent price projections for 2026 to $110, $95, and $80 per barrel for the second, third, and fourth quarters respectively - increases from earlier estimates of $95, $80, and $75.
Citi assigns a 50% probability to its revised base case, which assumes the Strait of Hormuz begins to reopen by the end of May, one month later than the bank had previously expected. Analysts led by Maximilian Layton recommend "near-dated oil exposure as an outright view and as a hedge" against the risk that Iran continues to impair flows through at least the end of May.
The research team frames the Iranian regime's incentives with a DOV utility function - Deterrence, Oil revenue, and Vengeance - arguing these elements give the regime both financial and strategic reasons to keep the Strait effectively shut for the near term. Citi's analysts say that outcome would tighten global oil supply, accelerate inventory drawdowns, and push oil prices materially higher.
"We do not expect this to last indefinitely, but we certainly expect it can last for at least another month (our base case of oil), if not through the end of June (our bull case for oil)," the analysts wrote, outlining the time horizons embedded in their scenarios.
Market moves have already reflected the tension. The report notes that the stalemate has lifted oil prices on Monday, with Brent futures trading up 3% at $108.5 a barrel at the observed time.
Under Citi's bull case, which the bank assigns a 30% probability, sustained disruptions through the end of June could drive Brent to $150 per barrel. In that scenario Citi expects quarterly averages of $130, $130, and $100 for the second through fourth quarters.
Citi also sketches a super-bull scenario in which damage to energy infrastructure or disruptions extending beyond two months could push prices to $160 to $180 per barrel on a sustained basis. That scenario sits above the bull case in severity and price impact.
On cumulative supply impact, Citi estimates roughly 500 million barrels of supply have been lost since the conflict began. Its base case projects total cumulative losses of 1.3 billion barrels if the Strait remains impaired through May. The analysts add that, under that base case, global inventories are on track to reach their lowest levels in over a decade by the end of July.
The bank's report also addresses why oil prices and broader risk assets have not moved even more dramatically to date. Contributing factors include an approximately 800 million barrel inventory build in the twelve months before the conflict, strategic stock releases coordinated by the IEA, and persistent market expectations of a relatively quick resolution. Citi further notes that lower oil intensity relative to GDP, particularly in the United States, has so far lessened the macroeconomic impact.
With these shifts in view, Citi has reclassified its prior base case - which assumed an imminent diplomatic deal - as the bear case. That scenario now carries a 20% probability and implies quarterly Brent averages of $95, $80, and $75.
Summary and implications - Citi's upgraded oil outlook tightens the range of plausible outcomes for crude markets in the near term. The bank's probabilities indicate a heightened chance of sustained higher prices if the Strait of Hormuz remains impaired, while also retaining lower-probability scenarios for both a swift resolution and for more extreme infrastructure disruption.
- Forecast changes - Brent targeted at $120 for the next zero to three months; quarterly averages of $110, $95, $80 for Q2-Q4 2026, up from $95, $80, $75.
- Scenario probabilities - 50% base case reopening by end-May; 30% bull case with disruptions through end-June; 20% bear case assuming an imminent deal.
- Supply and inventories - About 500 million barrels estimated lost so far; base case projects 1.3 billion barrels lost through May and inventories potentially at their lowest in over a decade by end-July.