Israel's airstrike on Iran, oil prices soar? Citigroup anticipates a downturn: seize the rebound, quickly hedge short!

Don't rush to go long on oil. According to Citigroup, the tense situation in the Middle East has provided investors with a rare hedging opportunity.

According to news from the Chasing Wind Trading Desk, Citigroup stated in a report on June 13 that against the backdrop of oversupply in the oil market, the price fluctuations caused by the tense geopolitical situation in the Middle East provide a rare hedging opportunity for investors. The downward trend in oil prices is unlikely to change in the short term, and if a U.S.-Iran nuclear agreement is reached, oil prices could fall below $60 per barrel.

According to CCTV News, on the early morning of the 12th local time, Israel launched an attack on Iran. The Israeli Air Force carried out airstrikes on dozens of targets related to Iran's nuclear program and other military facilities. The Israeli military stated that Iran has enough enriched uranium to produce multiple bombs within days, thus action needs to be taken to address this "imminent threat."

Geopolitical risks remain within controllable range

Citigroup analysts stated that the current situation may be temporarily under control.

The U.S. and Iran still plan to hold talks in Oman on June 15. The U.S. has urged Israel not to attack Iran. Iran has stated that it will respond "proportionately" to any actions by Western countries. Unlike ten years ago, many Gulf countries now support engaging with Iran and reaching a nuclear agreement.

Citigroup believes the likelihood of a U.S.-Iran nuclear agreement is about 60%. Trump, Saudi Arabia, and Iran's allies tend to favor de-escalation, and Trump hopes, needs, and may continue to push for lower oil prices to inject deflationary pressure into the U.S. economy in the event of an escalation.

Nevertheless, there remains a real possibility that an agreement may not be reached, but any escalation is unlikely to involve the region's energy infrastructure, and it is most likely to be controlled, followed by a cooling-off period and then further negotiations.

Historical reference for price fluctuations

Citigroup assessed the potential increase in Brent crude oil prices by analyzing three geopolitical events from last year, which included price increases related to geopolitical events in April, June, and October 2024. In two of these events, the incidents resulted in a price reaction of $6-8 per barrel.

Considering that Brent crude oil prices fluctuated relatively between $64-66 per barrel before June 6, the spike to $71 per barrel during trading on June 12 seems to align with this price trend. If substantial progress is made in the Oman talks, the recent price surge should retreat, bringing Brent crude oil prices back to the mid-$60 per barrel range.

Fundamentally, Citigroup analysts expect a significant oversupply in the oil market in the second half of 2025, primarily driven by OPEC+ reintroducing idle capacity into the market. Citigroup believes that in the worst-case scenario, if Middle Eastern energy infrastructure is affected, oil prices could temporarily overshoot to $75-80 per barrel. If military action is involved, prices could surge above the intraday high of $71 per barrel and eventually approach $80 per barrel, depending on the scale of military actions and responses.

However, if a nuclear agreement is reached with Iran, the resulting increase in supply and price decline, especially if WTI crude oil falls to a low of $50 per barrel, should prompt OPEC+ to slow down or suspend its return to capacity. Iran also has the potential to further increase production by about 500,000 barrels per day, which could further depress oil prices