Citi holds $75 Brent base case for Q3: US-Iran deal, Hormuz reopening seen
Citi’s step-down profile, from $75 in the third quarter to $70 in the fourth and $65 through 2027, frames the recent spike as a temporary risk premium rather than a lasting repricing, consistent with today’s quieter tape after this week’s flare-up. The bank’s read leans on Trump’s own sensitivity to equities and bond markets as the mechanism pulling Washington back to the table, an unusual but plausible transmission channel given how closely oil, stocks and yields have moved together through this conflict. If the Strait of Hormuz reopening does materialise as Citi expects, it would remove the single largest supply risk premium currently embedded in the curve, likely flattening backwardation and easing pressure on refined product cracks. For now, with Iran-US relations quiet again today, the market looks content to sit closer to Citi’s base case than to the blockade scenario.
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Citi is betting the oil market’s real ceiling is Trump’s tolerance for shaky stocks and bonds, not Iran’s next move.
Summary:
- Citi’s base case remains Brent crude averaging $75 a barrel in the third quarter of 2026
- The bank sees Brent averaging $70 a barrel in the fourth quarter of 2026 and $65 a barrel through 2027
- Citi’s lower forecasts assume a US-Iran deal ultimately materialises and the Strait of Hormuz reopens
- The bank points to Trump’s affinity for strong equity prices and stable bond markets as the basis for expecting a return to negotiations
- The forecast comes as oil markets have calmed after this week’s spike, with Iran-US tensions quiet again today
Citi’s base case for oil remains Brent crude averaging 75 dollars a barrel in the third quarter of 2026, the bank said, with prices expected to ease further to 70 dollars in the fourth quarter and down to 65 dollars through 2027 on the assumption that a US-Iran deal ultimately materialises and the Strait of Hormuz reopens.
The forecast lands on a notably quieter day for the conflict that has whipsawed the oil market for months. After a fresh flare-up earlier this week, including renewed US strikes on Iran and retaliatory attacks on American bases, Brent spiked toward 80 dollars before slipping back below 73 dollars on Thursday as traders reassessed the scale of any real disruption to supply. Vessel tracking data through the strait has shown reduced but still meaningful transit volumes even during the worst of the recent escalation, reinforcing the view among some desks that physical flows have proven more resilient than headline risk would suggest.
Citi’s reasoning for the eventual de-escalation rests on an unusual but consistent thread running through the bank’s outlook this year, that President Trump has shown a clear affinity for strong equity prices and stable bond markets, and that this preference forms the basis for expecting him to return to negotiations relatively quickly whenever tensions flare. That dynamic has played out repeatedly since the conflict began, with market routs and bond volatility appearing to coincide with renewed diplomatic overtures from Washington, even as rhetoric from Trump himself has periodically hardened, including threats this week to strike Iran’s Kharg Island export terminal and reimpose a naval blockade.
If Citi’s path plays out, the drop from a 75 dollar third quarter to a 65 dollar 2027 would represent a meaningful unwind of the geopolitical risk premium currently priced into the curve, contingent on the strait reopening in a durable way rather than the conditional, stop-start access seen so far. For now, with both sides quiet again today, the market appears willing to sit closer to that calmer scenario than to the blockade risk that dominated headlines only days ago.
This article was written by fl6553e4b45d84486a91658a8b3f02bf22 at investinglive.com.