Citigroup analysts, including Francesco Martoccia, forecast that Brent crude oil prices could drop to $60 a barrel by the end of 2026. This prediction is based on the rapid reassertion of market fundamentals, including the normalization of shipping flows through the Strait of Hormuz, reduced Chinese demand, and weaker-than-expected inventory draws. Brent crude was trading just above $72 a barrel on July 3, having fallen about 30% in the second quarter, unwinding all gains made during the recent US-Iran conflict.
The bank attributes this expected decline to the easing of disruptions in the Strait of Hormuz, which was previously subject to a double blockade during the US-Iran war. A memorandum of understanding between Tehran and Washington to pause hostilities and work towards a permanent agreement has led commercial operators to view the risk environment as manageable, helping normalize shipping routes and insurance markets. Citigroup advises selling any summer rallies, expecting Brent to settle in the $60 to $65 range by year-end.
Other major banks share a similar bearish outlook. Goldman Sachs Group anticipates the global oil market will swing back into oversupply as the impact of the Iran war fades and traffic through Hormuz recovers. Morgan Stanley has also recently reduced its oil forecasts, citing risks of a market glut. The six-month Brent spread has turned negative, indicating a shift from a deficit to a surplus in the market, further supporting these bearish predictions.
The UAE has rapidly increased its oil exports, climbing nearly 30% last month to near 2017 levels, with Abu Dhabi utilizing its Habshan-Fujairah pipeline to bypass the Strait of Hormuz. Additionally, OPEC+ is expected to approve another output increase of roughly 188,000 barrels per day for August, contributing to the potential oversupply. Julius Baer's Norbert Rucker noted a "magnet in the sub-$70s" pulling Brent lower as hedge funds shift from long to short positions.
