Israel's military strike in Iran has caused oil prices to spike, with West Texas Intermediate topping out at $77.62/bbl and Brent at $78.50/bbl, but analysts at Citigroup in a report for clients released Friday morning said they do not believe that prices will stay at these elevated levels for a sustained period of time.
The bank said that heightened geopolitical tensions may remain in place, but energy flow disruptions are expected to be limited, adding that the attacks do hamper the Trump administration's goal of cheaper oil.
"The Trump administration's goal of achieving lower oil prices likely gets more difficult with this operation. Effectively, the only way to get to lower oil prices is through diplomacy, since oil supply can move more than demand," the report said.
Citi analysts also said that Iran is not likely to strike energy facilities in the region, noting that Iran's relationship with its Gulf state neighbors has improved. As a result, the bank believes that Iran would take actions to disrupt local oil production and transit.
Unless there is a macro hit to the global economy like in 2008 with the Great Recession or 2020 with the Covid-19 pandemic, the bank does not expect demand to weaken meaningfully, so more supply may be necessary.
A return to U.S.-Iran negotiations would be the easiest way to boost supply, the bank said, but overnight headlines note that negotiations scheduled for Sunday have been canceled.
Citi noted that U.S. producers do not appear to be interested in boosting production, while Saudi Arabia has already started to increase production and it may be difficult to get more out of them. Additionally, even with Trump willing to negotiate with Russian President Vladimir Putin, convincing him to add barrels to the market would not be easy.
Analysts at the bank looked at Brent managed money data to get a sense of where prices could be heading. The bank noted a solid correlation between managed money positioning in WTI and Brent and a detrended Brent price.
If the overnight action by Israel would reduce the gross shorts of money managers from 187,000 contracts to zero, the price move would be closer to $14/bbl, the bank believes.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Denton Cinquegrana, dcinquegrana@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
(END) Dow Jones Newswires
06-13-25 0952ET
