Oil markets have relinquished much of the recent rally despite ongoing disruptions in the Strait of Hormuz, with Citigroup analysts pointing to several stabilising forces that have capped further upside.
Brent crude earlier climbed as high as $125-$126 a barrel, then fell back into a range nearer $100-$114 depending on the contract month, after market participants reassessed how long supply disruptions might last and took note of emerging signs of softer demand.
According to Citi, the roughly $14 decline over the past week reflected multiple offsetting elements that cushioned the price impact. The bank highlighted releases from strategic petroleum reserves, persistently high global inventories and weaker oil consumption across developing economies as key contributors to the pullback.
China's activity featured prominently in Citi's appraisal. The bank estimated China reduced crude imports to around 2.4 million barrels per day in April and May, down from a 2025 average of 11.6 million bpd. Citi said that decline relieved some pressure on world supplies and that the country achieved the drop in part through lower stockpiling and by cutting back on refined product exports.
Despite the recent retreat, Citi did not abandon a near-term bullish stance. The bank kept its 0-3 month Brent point forecast at $120 a barrel and projected average Brent prices of $110 for the second quarter. Its outlook calls for an easing to $95 in the third quarter and $80 in the fourth quarter.
Citi added a cautionary note: markets may still be underpricing the prospect of a prolonged disruption of flows through the Strait of Hormuz if negotiations between the United States and Iran prove difficult. That potential for an extended supply shock remains a source of upside risk to prices, the bank said.
Context and market dynamics
Traders scaled back the most aggressive supply-risk assumptions as evidence mounted that global stock levels and demand trends would provide a buffer against immediate shortages. At the same time, official reserve releases and a step-down in Chinese crude buying materially altered the supply-demand balance in the near term.
Takeaway
The combination of high inventories, softer consumption trends in developing markets and market hopes for a diplomatic resolution has driven a sizable short-term correction in oil prices, even as fundamental upside risks tied to the Strait of Hormuz persist.