Citi Says Oil Prices Could Surge to $130 A Barrel if Strait of Hormuz Remains Closed
Citi analysts warned of how quickly the oil market could tighten further if the Strait of Hormuz does not fully reopen soon, noting that crude could climb as high as $130 a barrel by the end of June under its most severe scenario.
Speaking to CNBC, the analysts laid out three possible outcomes if the Strait remains closed due to the United States’ war in Iran. In its best-case scenario, a ceasefire extension would be signed this week and flows through Hormuz would gradually recover through May, reaching pre-disruption levels by the end of June.
Even in that relatively optimistic outcome, the bank expects a steep drawdown in global crude and refined-product inventories: about 900 million barrels by the end of June, according to the CNBC report. Citi says that would still leave the market unusually tight, with Brent averaging about $95 a barrel in the second quarter before easing to $80 in the third quarter and $75 in the fourth.
The second scenario is less optimistic and contemplates a scenario where flows through the Strait of Hormuz remain disrupted for another month. Exports could continue to rely on diversions through Bab al Mandeb and Fujairah, with Citi estimating total losses rising to about 1.3 billion barrels. Under that case, oil would reach about $110 a barrel in the second quarter, then cool to $90 in the third and $80 in the fourth, according to the report.
In the third scenario, Citi says that if the disruption lasts eight to nine weeks from April 20, crude and product losses could rise to around 1.7 billion barrels, pushing inventories to record lows. In that outcome, oil would stay around $130 a barrel until the third quarter and only ease to about $100 by the end of the year.
Those projections arrive as oil is already elevated. In the CNBC report, West Texas Intermediate was hovering near $89.40 a barrel on Tuesday, while Brent traded around $95.36. Reuters has also reported that the market remains highly sensitive to whether diplomacy can stabilize the region after the latest U.S.-Iran talks failed to produce a breakthrough and after Washington moved ahead with a blockade tied to Iranian ports and the Strait of Hormuz.
Citi says a resolution still depends on the U.S., Iran, and regional allies avoiding a worst-case outcome that would involve broader destruction of Middle East energy infrastructure. Global head of commodities research at Citi, Max Layton, told CNBC that “each day that passes, we literally burn through around 13 million barrels of crude and oil products.”
President Donald Trump told CNBC’s Squawk Box on Tuesday that the United States was “going to end up with a great deal” with Iran and added, “I think they have no choice,” according to a White House readout of the interview. But Reuters reported over the weekend that Iran had not decided to send a negotiating delegation to Pakistan as long as the naval blockade remained in place.
