Citi sees more upside risk for oil prices despite recovering Middle Eastern crude exports, a considerably less bearish assessment from the bank that predicted $60-to-$65 Brent by year-end just three months ago.
Brent December futures traded at $111.70 on Thursday, up $2.88, or 2.65%, after touching $112.68 earlier in the session.
The problem, Citi says, is that getting crude out of the Gulf and getting it to buyers at a reasonable cost are two different things.
More than 1 million barrels per day of Gulf crude was transferred between vessels in September, representing about 7.5% of regional exports. Before the U.S.-Iran war, these transfers were virtually nonexistent.
Freight rates for very large crude carriers traveling from the Gulf to China recently approached $250 per metric ton, or roughly $35 per barrel, Citi estimates. That’s more than 20 times the previous decade’s average.
Excluding Iran, Gulf crude exports recovered to more than 81% of prewar levels in September, aided by increased Saudi shipments. Iran’s own exports have fallen to zero under a U.S. blockade.
Before the war began in February, the Strait of Hormuz handled about one-fifth of the world’s oil and LNG supplies.
Citi has had to rethink its oil market outlook repeatedly. In July, it urged investors to sell summer rallies and predicted Brent would fall to $60-$65 by year-end as Hormuz shipping normalized.
In August, Citi raised its third-quarter Brent forecast from $75 to $80 but left its fourth-quarter call at $70 and its 2027 forecast at $65. Brent was trading at $83.11 when Citi issued that revision.
The bank offered no new price target in Thursday’s assessment. Instead, it warned that the recovery in Gulf exports has been a recovery in volumes, not shipping efficiency.
Buyers are receiving more crude, but the added transfers and soaring freight costs are keeping delivered supplies expensive.
By Julianne Geiger for Oilprice.com
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