Oil prices depend on the US and Iran! Citigroup: If an agreement is reached, look at $50; if not, look at $70
Citigroup pointed out that short-term oil prices will depend on the outcome of the nuclear agreement negotiations between the United States and Iran. If an agreement is reached and sanctions are lifted, oil prices could fall to $50 per barrel; if the negotiations break down, oil prices could rise back above $70. Citigroup believes the probability of ultimately reaching an agreement is 60%, and has revised its short-term oil price expectation for the next 0 to 3 months from $60 to $55
Recently, Brent crude oil prices have dropped significantly from $75 in early April to above $60 currently, primarily influenced by Trump's tariff policy and the dual effect of OPEC+ increasing production. So, how will oil prices trend in the future?
On May 8th, according to news from the Chasing Wind Trading Desk, Citigroup released a research report indicating that the future trend of oil prices will largely depend on the nuclear agreement between the United States and Iran. If the two countries reach an agreement and lift some sanctions, oil prices may further decline, approaching $50 per barrel.
However, if negotiations break down or the U.S. takes a tougher stance (such as further constraining Iran's nuclear program), oil prices may rebound to above $70. Citigroup believes that the probability of ultimately reaching an agreement is 60%, while the probability of negotiation failure is 40%.
Overall, it is highly likely that oil prices will fluctuate between $50 and $70. Citigroup maintains its long-term forecast of $60 for Brent crude oil prices in 2025 but has lowered its oil price expectation for the next 0 to 3 months from $60 to $55, anticipating greater downside risks for oil prices before mid-year.
As of Thursday, Brent crude oil prices briefly rose nearly 1.8% to approach $62.20.
What are the supporting factors for oil prices?
Regarding OPEC+, although the organization has decided to accelerate production increases, the pace of these increases may be temporarily paused or reversed due to market conditions, which could provide some support for oil prices. OPEC+ has recently increased supply as planned, at a rate nearly three times faster than expected, with an increase of 411,000 barrels per day for two consecutive months, far exceeding the original plan of 137,000 barrels per day.
However, it is worth noting that Saudi Arabia has raised the official selling prices (OSPs) for June while deciding to increase production, which seems contradictory to its decision to boost output. Analysts believe this decision may be related to the strengthening of benchmark crude oil prices in the Middle East, particularly the strong performance of Dubai crude relative to Brent crude.
Additionally, production cuts resulting from low oil prices may also support oil prices to some extent. Specifically, against the backdrop of tariff issues and concerns about a global economic recession, oil prices have fallen from $75 per barrel in early April to the current low levels. This change has begun to affect crude oil supply, especially as U.S. shale oil producers have started to reduce output, and Mexico's oil production continues to decline, despite the Mexican government's efforts to reverse this trend.
Citigroup points out that a long-term low oil price environment may lead to production cuts among some high-cost producers, including U.S. shale oil and Canadian oil sands. This change may combine with the demand recovery brought about by macroeconomic recovery, laying the foundation for a potential rebound in oil prices from the end of 2025 to 2026
