Research Forecasts Oil Prices to Hit $120 Amid Rising Geopolitical Tensions

Citi Research has significantly increased its oil price forecast, predicting Brent crude to reach $120 per barrel by late 2024 and early 2025, primarily driven by escalating tensions in the Middle East.

While this bullish outlook has garnered attention, Citi’s baseline forecast remains more conservative, projecting Brent crude prices at $74 per barrel by the end of 2024, followed by a decline to $65 by early 2025. This reflects the ongoing market weaknesses despite geopolitical risks.

Key Points:

Bullish Outlook: Citi’s optimistic scenario is primarily driven by rising tensions in the Middle East.
Baseline Forecast: Citi maintains a more conservative outlook, projecting prices at $74 per barrel by the end of 2024.
Bear Case: Citi’s downside scenario envisions prices dropping to $55 in early 2025 if OPEC+ increases production.
Historical Analysis: Citi’s analysis suggests that geopolitical impacts on oil prices are typically short-lived and transient.
Market Sentiment: Current market sentiment is mixed, with Brent crude trading around $77 and US WTI at $74.
Implications:

Market Volatility: Citi’s varied forecasts highlight the potential for significant market volatility.
OPEC+ Actions: Investors should closely monitor OPEC+’s actions and potential developments in the Middle East.
Long-Term Fundamentals: While geopolitical events may cause temporary price spikes, long-term fundamentals are likely to prevail.
Additional Insights:

OPEC’s Recent Decision: Citi previously predicted a temporary price support for Brent crude in Q4 2024 due to OPEC’s decision to delay tapering production cuts and the suspension of Libyan oil exports.
Surplus in 2025: Citi warned of renewed price weakness in 2025 due to a projected surplus of one million barrels per day.
Bullish Outlook from Standard Chartered: Standard Chartered is even more optimistic, predicting no supply glut until at least Q4 2024 and H1 2025, assuming OPEC+ producers adhere to their commitments.
Compensation for Overproduction: Russia, Iraq, and Kazakhstan are required to compensate for overproduction through September 2025.
Overall, while Citi’s bullish forecast is notable, the market remains uncertain, and investors should be prepared for potential volatility.