FX.co ★ Citi foresees surge in oil prices

Citi analysts are bracing for an interesting start to 2025. According to their forecasts, oil prices might take off, jumping by as much as 62%. How is that possible? The fact is that even a small escalation of conflict in the Middle East could push oil prices up to a hefty $120 per barrel in the first quarter.

Citi offers us a scenario, according to which Israel may respond to Iran’s rocket attacks not just with words but with actions, thus seriously hitting Tehran’s oil assets. Eric Lee, Citi’s energy strategist, says that such actions could take several million barrels a day out of exports.

Citi also has a more modest prediction. It suggests that oil prices will likely hover around $74 per barrel in 2025, before dropping to $60. So, despite the buzz, a 62% increase is far from guaranteed. By the way, Israel has already stated it is not planning to target Iran's oil facilities, focusing instead on military objectives. So, for now, the odds of the market blowing up from supply disruptions seem low.

Still, if there is anything stable in this world, it is unpredictability. Lee points out that Saudi Arabia, the UAE, and other OPEC+ members might step in to fill any gaps in the market if something goes awry. They could pump up to 6 million barrels per day. Thus, if someone suddenly tries to spark an oil panic, OPEC+ has reserves ready to calm the hype.

On top of that, oil demand is not surging, with China, one of the biggest consumers, facing economic challenges. Lee bluntly says that this is a market where any move feels like a binary code: it is either all or nothing. That is why Citi recommends staying cautious, urging us not to get swept away by dramatic scenarios too soon.

It is not just Citi worrying about a price spike. Other analysts also see the potential but think the risk of Iranian supply disruptions is not that high. Even Saudi Arabia has voiced concerns, saying that, in its opinion, OPEC+ is already pumping more oil than necessary. So instead of a price jump, we might see prices drop by as much as 33%.

So, what will 2025 bring? Will prices shoot up to the moon or crash down? Either way, the oil market is sure to keep us on our toes!