Investing.com – Citigroup has lifted its bull case on oil prices after assessing historical risk events given the potential for supply disruption in the Middle East.
The US bank maintains its baseline forecast of $74/barrel Brent in the fourth quarter of this year and $65/barrel in the first quarter of 2025, with an indicative probability of 60%, due to weak underlying fundamentals in the oil market.
However, Citi has raised its bull case scenario for oil prices for Q4-24 and Q1-25 from $80/bbl to $120/bbl, raising the indicative probability from 10% to 20% given the increased potential of the market. to fear or realize supply losses in the coming months.
A recent analogy to the potential escalation in the Middle East from here is the conflict between Russia and Ukraine on February 22, which escalated early in the second quarter to an average of $116 per barrel in the second quarter of 2022, according to the bank.
“Our new bull case scenario is based on supply fears and disruptions similar in magnitude and duration to those in 2022,” Citi analysts said in an Oct. 14 note.
The losses that could result from an escalation could range from an attack on a refinery disrupting the supply of liquids (approximately 0.1-0.7 million barrels per day), to the loss of the majority of Iran’s crude exports oil (about 1.5 million barrels per day), even with varying degrees of impact on oil flows through the Strait of Hormuz (up to 20 meters b/d), “although we consider the latter to be very unlikely.”
Supply losses could also arise from any response by Iran that focuses on regional energy sources.
“In our bull case scenario, we model greater actual disruptions than was the case during Russia-Ukraine, although higher levels of spare capacity and inventory levels, and a weakening demand environment, could mean a similar price response,” Citi added.
The bank’s bear scenario includes an increase in OPEC+ production from December, and a reduction in oil supply risks; prices will reach $60/bbl for Q4 24, $60/bbl and $55/bbl in Q1 25, with an indicative probability of 20%. %, down from 30%.
At 05:50 ET (09:50 GMT), Brent was trading 4.9% lower at $73.66 per barrel.
