Citi raises its near-term oil view
Citi’s higher third-quarter Brent forecast reflects a market still pricing in disruption through the Strait of Hormuz. The bank now expects Brent to average $80 per barrel in the quarter, up from $75, as the U.S.-Iran conflict continues and negotiations haven’t restored normal shipping. The change is modest in dollar terms, but it signals that Citi’s earlier assumption of a quicker return to normal supply flows has become harder to defend.
That revision doesn’t change Citi’s view that the conflict will eventually be resolved. But the five-month war has lasted longer than the bank expected, sustaining more geopolitical risk in crude prices. Citi left its fourth-quarter forecast at $70 per barrel and expects Brent to average $65 in 2027. Those figures describe a market expected to loosen over time, even as the near-term outlook has become less settled.
Forecasts like these depend on more than the direction of oil demand. They also reflect what analysts assume about the volume of crude available to buyers and how quickly disrupted supply can return. When shipping routes remain constrained, the market has to account for the possibility that fewer barrels will reach their usual destinations. That risk can support prices even when traders expect a political resolution eventually.
Hormuz remains the key assumption
Shipping through the strait is still heavily constrained, Middle East oil production remains below pre-war levels, and commercial vessels have continued to face attacks while negotiators discuss possible arrangements. Citi’s fourth-quarter forecast therefore hinges on more oil moving through Hormuz. The forecast isn’t simply a call on diplomacy; it also assumes that any improvement in negotiations translates into safer, more regular commercial shipping and a recovery in production.
That link can take time. In situations like this, a diplomatic opening doesn’t automatically restore normal traffic: shipping decisions, production levels and market confidence may adjust at different speeds. Even if traders begin to price in a resolution, the physical supply picture would still need to improve for the expected easing in prices to be supported by returning barrels. And yet, markets can move well before that change is visible in actual flows.
Market prices reflected that uncertainty on Friday afternoon. Brent futures stood at $83.11 a barrel, up $0.62, while West Texas Intermediate rose $0.51 to $77.80. Brent had slipped below $80 earlier in the week as hopes for an agreement lifted, then gained ground as concerns about U.S.-Iran negotiations returned. The quick reversal shows how sensitive prices remain to signals about the talks, though a single trading session can’t establish a durable trend.
For readers tracking the market, the gap between spot sentiment and quarterly forecasts matters. A futures price observed on one afternoon captures the market’s latest balance of expectations; an average-price forecast covers a longer period and depends on how conditions evolve across it. Citi’s $80 third-quarter view sits below Friday’s Brent quote, but that comparison alone doesn’t show whether the bank expects prices to fall, rise, or simply average out over the full quarter.
Citi’s earlier call now looks less secure
Citi’s current outlook marks a move away from its more bearish call in early July. At the time, the bank recommended selling summer rallies and forecast Brent at $60 to $65 by year-end, assuming Hormuz traffic normalized and Washington and Tehran advanced toward a broader agreement. Those assumptions put a relatively quick easing of the disruption at the center of the trade. The higher third-quarter forecast acknowledges that the expected recovery hasn’t yet arrived on the timetable Citi had anticipated.
This is more significant than it looks: forecasts aren’t just price targets, they’re summaries of the assumptions analysts believe the market can support. Citi has raised its near-term estimate while keeping its later projections lower. That combination suggests the bank sees the disruption as persistent enough to affect current prices, but not necessarily permanent enough to overturn its longer-term expectation of relief.
The distinction is useful, but it leaves a wide range of outcomes. If shipping improves sooner, the market could focus more on Citi’s lower fourth-quarter and 2027 averages. If the constraints continue, the near-term premium could last longer than the bank’s forecast implies. (And this is the part most people overlook.) A forecast can be directionally right about eventual normalization and still miss the path, especially when timing is the central uncertainty.
Forecasts diverge on the fourth quarter
The new view also contrasts with Citi’s December projection, which put 2026 Brent at an average of $62. The bank’s scenarios then ranged from $50 in a bearish case to $75 if geopolitical disruption materialized. The conflict did, and Brent spent much of the second quarter well above those levels after millions of barrels per day were removed from the market. The difference between the earlier scenario range and subsequent prices underlines how quickly a supply shock can overwhelm a forecast built around calmer conditions.
Goldman Sachs sees less certainty around a near-term decline. Earlier this week, it said Brent could remain between $80 and $90 until markets see either confirmation of a U.S.-Iran agreement or a significant escalation in attacks. If the strait stays closed longer, Goldman said prices could reach $120 per barrel. That’s a substantially more severe risk case than Citi’s current central path, although the two banks’ forecasts aren’t directly comparable without aligning their time frames and assumptions.
The disagreement is a reminder that the key question isn’t simply whether prices will fall. It’s how long supply remains impaired, and how quickly buyers and sellers respond as conditions change. If you’re working in this space, watch the assumptions behind each forecast: the timing of restored shipping, the recovery in production, and whether negotiations produce arrangements that vessels can operate under. A headline price target can conceal how much depends on those steps.
What the outlook depends on
Here’s the thing: Citi’s higher third-quarter estimate recognizes that supply disruption has outlasted its earlier assumptions, while its fourth-quarter and 2027 forecasts still point to lower prices. The pace of recovery in Hormuz shipping will be central to whether that decline arrives on schedule. The outlook therefore rests on a two-part judgment: disruption is serious enough to lift the near-term average, but conditions are expected to improve enough to ease prices later.
That judgment remains exposed to events the forecasts can’t pin down in advance. Negotiations may progress without immediately changing shipping conditions, or the market may react sharply to fresh signs of risk. The figures from Citi and Goldman frame those possibilities, but they don’t settle them. For now, the clearest signal is the continued gap between expectations of eventual normalization and the supply constraints that are still shaping prices.
Not a smooth return.