Oil Prices Poised for Significant Plunge as Strait of Hormuz Shock Fades: Citigroup Forecasts $60 Target

Oil Prices Poised for Significant Plunge as Strait of Hormuz Shock Fades: Citigroup Forecasts $60 Target​

Global Markets Navigate Energy Shift as Supply Normalizes​

Global energy markets are rapidly returning to a state of normalization, leading to a swift and sharp collapse in crude oil prices. This trend is being heavily driven by the easing of disruptions previously associated with the Strait of Hormuz.

Citigroup Inc. analysts have voiced a notably bearish outlook for the global crude market. They suggest that fundamentals are reasserting themselves rapidly as the artificial shortages created by geopolitical instability begin to fade away.

The resumption of shipping flows through the crucial waterway is adding substantial barrels back into the supply pool for refiners and processors. This availability, following a period where buyers secured expensive alternatives, has catalyzed a rapid decline in market prices.

Brent crude oil, which serves as the global benchmark, experienced a severe contraction over the second quarter. The benchmark commodity plunged by 30% during this period, effectively erasing all of the gains achieved during the height of the conflict.

Key Drivers Behind the Bearish Crude Outlook​

Citigroup’s note highlights several converging factors contributing to the downward pressure on oil prices. They point out that shipping flows are now significantly normalizing across the region.

A major factor cited is the continued absence and decreased demand from Chinese buyers, which has sharply weakened physical crude markets. Furthermore, inventories have drawn down far less than what had been previously anticipated by the market.

The analysts stated that organized navigation patterns and increasing traffic volumes suggest commercial operators are now viewing the risk environment as manageable, rather than prohibitive. This shift implies a move away from panic buying driven by fear of supply interruption.

Analyst Consensus Predicts Oversupply Scenario​

The trend toward normalization is echoed by other major financial institutions tracking the oil market closely. Goldman Sachs Group Inc. has predicted that the global oil market is heading back into a period of oversupply. Morgan Stanley has also twice cut its recent oil forecasts, flagging an increasing risk of a commodity glut.

The Citi analysts maintain their conviction, advising against any short-term summer rallies in the energy sector. They forecast Brent crude to reach a range between $60 and $65 per barrel by year-end.

Currently, Brent was trading just above $72 a barrel on Friday. This forecast sees a significant movement from that recent high point, mirroring previous lows where oil traded below $60 in January.