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Analysts at Citi expect Brent crude to fall as low as $60 a barrel by the end of the year as they foresee the US-Iran truce holding.
The bank’s analysts said in a Friday note that despite temporary flare-ups, both sides have good reason to uphold the memorandum of understanding signed in mid-June.
“We expect the MOU to hold, not because trust has suddenly emerged, but because the incentives to break are poor for both sides,” they wrote.
“The US and Iran both appear to be displaying genuine conflict fatigue, while the one meaningful source of potential disruption, that is Lebanon, is increasingly constrained by a broader US preference for de-escalation.”
The note recommends traders sell into oil price rallies over the summer and forecasts that Brent prices will be between $60 and $65 a barrel by the end of the year.
In mid-June Goldman Sachs cut its year-end forecast for Brent to $80 a barrel. In recent notes its commodities team highlighted a swift resumption of oil flows from the Gulf and said they could return to prewar levels by early July.
The Goldman analysts, however, remain more cautious than their Citi counterparts about the strength of Iran’s incentives to uphold the truce.
Shipping volumes through the Strait of Hormuz have increased to 7mn barrels a day of crude oil, compared with 15mn before the conflict, according to Citi analysts.
They say shipping volumes through the strait are likely to be higher than official data suggests because many vessels have their transponders disabled for security reasons.
On Friday Brent prices edged up 0.9 per cent to about $72.50 a barrel. January contracts for Brent are trading at about $73, meaning the Citi analysts expect prices to fall more than the market does.
Prices for Brent have largely traded below $80 a barrel since the US and Iran agreed to cease hostilities.
Prices peaked above $126 a barrel on April 30, the highest level since 2022.
