⦿ Executive Snapshot

• What: Citi forecasts Brent crude oil will reach $120 per barrel near term, with a bull case of $150 due to under-priced supply disruption risks.
• Who: Citi Research, International Energy Agency (IEA), Iran.
• Why it matters: The forecast highlights significant risks in global oil supply and pricing dynamics, especially regarding the Strait of Hormuz, a critical chokepoint for oil transport.

⦿ Key Developments

• Citi forecasts Brent crude will reach $120 per barrel in the near term, arguing that oil markets are currently under-pricing the risk of a prolonged supply disruption.
• The bank's bull-case scenario puts Brent at $150 per barrel, premised on the Strait of Hormuz reopening only gradually during Q3 2026.
• Citi estimates global oil inventories will draw by approximately 1 billion barrels over the course of 2026, underscoring the physical supply gap created by the Hormuz disruption.
• The bank forecasts 2026 oil demand growth will contract by 0.6 million barrels per day but cautions against reading this as evidence of collapsed end-use demand.
• Citi's 2027 central case sees Brent ranging between $80 and $90 per barrel, assuming Iran restores control of Hormuz flows and balances oil exports with demand growth expectations.

⦿ Strategic Context

• The closure of the Strait of Hormuz, through which approximately a fifth of global oil supplies pass, has been effectively closed since the outbreak of the US-Israeli conflict with Iran, marking the largest disruption on record according to the IEA.
• The market's current pricing does not reflect the possibility of prolonged disruption, revealing a significant disconnect between market sentiment and actual supply fundamentals.

⦿ Strategic Implications

• The immediate market consequence is a potential price spike in crude oil, with Citi's targets indicating that current pricing may not adequately account for supply risks.
• In the long term, should the Strait of Hormuz remain closed longer than anticipated, a severe price correction could occur once supply normalizes, impacting global oil market stability.

⦿ Risks & Constraints

• Potential risks include regulatory and geopolitical factors affecting the Strait of Hormuz's reopening, which could prolong supply disruptions.
• The market's dependency on Iranian oil exports and the geopolitical landscape introduces additional uncertainties that could impact pricing and supply stability.

⦿ Watchlist / Forward Signals

• Key forward signals include the timing and conditions under which the Strait of Hormuz reopens and Iran's ability to restore oil flows.
• Monitoring global oil inventory levels and demand growth will be critical to assess the market's ability to absorb further disruptions without triggering price spikes.