Citi said oil prices could move higher if talks between the United States and Iran continue to be thorny. The bank noted multiple elements that have so far eased market strain - including inventory drawdowns, releases from the Strategic Petroleum Reserve (SPR), lower Chinese imports, softer demand and occasional signs of de-escalation - but warned that diplomatic difficulty has pushed upside risks higher for the near term.
In its outlook, Citi maintained its zero-to-three-month Brent price forecast at $120 a barrel. The bank set a quarterly trajectory that calls for Brent to average $110 a barrel in the second quarter, then to decline to $95 in the third quarter and $80 in the fourth quarter.
Citi described its base case as one in which the disruption in the Strait of Hormuz eases by the end of May. Despite that baseline expectation, the bank said the difficulty in achieving a U.S.-Iran deal has increased near-term upside risks for oil markets.
The bank also cited ship tracking data to note China's possible cut in oil imports in April and May of about 2.4 million barrels per day, bringing flows to around 9.2 million bpd from a 2025 average of about 11.6 million bpd. Citi said that reduction in Chinese imports has helped reduce stress on the global oil market.
On risk assessment, Citi warned explicitly: "We continue to believe that oil markets are under-pricing duration and tail risks." That phrasing underscores the bank's view that the market may not be fully valuing longer-lasting disruptions or low-probability, high-impact scenarios.
The bank’s view therefore balances a short-term forecast that assumes easing disruption in a key shipping chokepoint with a caution that diplomatic deadlock and other factors could still push prices upward. Inventory dynamics, strategic releases, demand patterns and intermittent de-escalation all play roles in cushioning shocks, according to Citi, but they do not eliminate the potential for renewed upward pressure if negotiations falter.
Market participants and sectors tied closely to oil flows and prices will likely watch diplomatic developments and the inventories data closely in the near term as indicators of whether the bank’s base case holds or whether the upside risks materialize.