Key Points:
- Citi warns that crude oil prices will likely rise if negotiations between the United States and Iran remain difficult.
- The bank expects Brent crude to hit $120 a barrel in the short term before dropping to $80 by late 2026.
- China cut its oil imports by roughly 2.4 million barrels per day, helping cushion the global supply shock.
- Analysts believe the financial markets currently ignore the severe risks of a prolonged conflict in the Middle East.
Global oil markets face a bumpy road ahead as political tensions continue to flare. Financial experts at Citi released a new warning regarding the fragile state of international energy supplies. The massive bank stated that oil prices could easily rise much further if ongoing talks between the United States and Iran remain thorny. Diplomatic progress seems slow, leaving energy traders nervous about the immediate future of global fuel costs.
Despite the threat of higher prices, a few key factors currently keep the market from completely boiling over. Citi pointed out that several temporary safety nets have successfully cushioned the blow of the recent geopolitical chaos. First, massive inventory drawdowns have kept enough fuel flowing to meet immediate needs. Additionally, government leaders authorized emergency releases from the Strategic Petroleum Reserve, adding millions of extra barrels directly into the open market.
General consumer behavior also plays a big role in stabilizing the current situation. The bank noted that overall global demand appears weaker than usual, suggesting factories and everyday drivers need less fuel right now. Periodic signs of de-escalation between rival nations also give traders sudden bursts of hope, preventing panic buying. These combined elements create a temporary shield against what could otherwise become a massive spike in global energy costs.
However, the physical movement of oil remains a massive concern. The Strait of Hormuz, a narrow and critical waterway for global shipping, continues to experience significant disruptions. Citi outlined its base case scenario, predicting that the severe shipping bottlenecks in the strait will finally ease by the very end of May. Even with this optimistic timeline, the bank warned that the sheer difficulty of reaching a solid US-Iran deal significantly increases the risk of near-term price jumps.
Because of these lingering threats, Citi decided to hold firm on its aggressive short-term price predictions. The bank officially maintained its zero-to-three-month price forecast for Brent crude oil at a hefty $120 a barrel. If oil actually hits this target, everyday consumers will quickly feel the painful impact at their local gas stations. High crude prices immediately translate into higher gasoline, diesel, and jet fuel prices.
Looking further down the calendar, the financial experts see a slow but steady cooling trend. Citi expects Brent crude to average around $110 a barrel throughout the entire second quarter of the year. After the summer heat passes, the bank predicts the market will finally start to relax. Analysts forecast the price will drop to $95 a barrel in the third quarter, then sink to a much more comfortable $80 a barrel by the fourth quarter.
A massive shift in Asian buying habits helps explain this expected price drop. China, the world’s largest energy buyer, recently changed its purchasing strategy. Citi highlighted a massive possible cut in Chinese oil imports spanning April and May. The bank estimates China reduced its daily intake by about 2.4 million barrels per day during this critical two-month window.
The numbers show a drastic change from the previous year. In 2025, China imported an average of 1.6 million barrels of oil per day. Under the new reduced schedule, that number falls to roughly 9.2 million barrels per day. Citi analysts verified this massive drop by closely studying global ship-tracking data, which monitors the precise movements of giant oil tankers crossing the oceans.
This sudden pullback by Chinese buyers serves as a massive relief valve for the rest of the world. By purchasing millions fewer barrels of oil each day, China significantly reduces overall stress on the global oil market. If Asian factories demanded their normal fuel levels right now, tensions in the Middle East would likely push prices far beyond current estimates. The drop in demand perfectly offsets the lingering threats of supply disruptions.
Even with China buying less oil and the Strategic Petroleum Reserve releasing supplies, experts refuse to sound the all-clear. The situation remains highly unpredictable, and one misstep could send the entire market into chaos. In its final warning to investors, Citi explicitly stated that it believes oil markets are underpricing duration and tail risks. This means traders might be far too confident that the current conflicts will end quickly and peacefully.
Tail risks are rare, catastrophic events that can completely wreck financial markets. If diplomacy fails or fighting damages a major oil facility, the current safety nets will not matter. A direct hit to a major pipeline or a complete closure of the Strait of Hormuz would instantly erase the benefits of weaker demand and government reserves. The bank wants clients to remember that worst-case scenarios remain a very real possibility.
For now, the world waits to see what happens at the negotiating table. The delicate balance between shrinking Chinese demand and Middle Eastern instability will dictate exactly how much we all pay for energy this year. Until Washington and Tehran sign a firm agreement, the threat of $120 oil will continue to hang over the global economy.
