Brent crude could retreat to $60 to $65 a barrel by the end of 2026 if shipping through the Strait of Hormuz continues to normalize and diplomatic progress between the United States and Iran holds. That is the core message from Citi’s latest commodities outlook, which argues that the geopolitical premium embedded in oil prices is fading.
The call matters because Brent has already pulled back into the low $70s per barrel after recent disruption fears eased. For energy markets, the shift suggests fundamentals such as weaker physical pricing, softer Chinese buying, and less aggressive inventory draws are regaining control after months of conflict-driven volatility.
If Citi’s forecast proves correct, lower oil prices would reshape expectations for inflation, refining margins, energy equities, and the earnings outlook for producers heading into 2027.
Key Facts
- Citi expects Brent crude to reach $60 to $65 per barrel by the turn of the year.
- Brent has already fallen back to the low $70s per barrel as Strait of Hormuz disruptions have faded.
- Goldman Sachs estimates a global oil surplus of about 3 million barrels per day in 2027.
- That surplus could still be roughly 2 million barrels per day even after more than 1 million barrels per day of global strategic reserve rebuilding.
- Morgan Stanley has cut its oil price forecasts for the next 18 months on expectations that Hormuz reopening will accelerate a supply glut.
Brent Crude Outlook
Citi’s bearish view on Brent crude rests on the idea that the market is moving out of crisis mode. The bank expects shipping flows through the Strait of Hormuz to keep improving, reducing the immediate threat to a chokepoint that handles a large share of global seaborne oil trade. It also sees the U.S.-Iran memorandum of understanding as fragile but likely to evolve into a broader deal over the coming months, lowering the odds of renewed disruption.
That matters because the oil market had been pricing in a meaningful geopolitical risk premium. As that premium unwinds, traders are turning back to supply-and-demand signals that look softer. Citi points to weak Chinese crude buying, sharply weaker physical oil markets, and inventory draws that have been smaller than many expected. In practical terms, that combination implies that supply is arriving faster than end-user demand can absorb it.
The wider market backdrop supports that argument. More banks are now warning that 2027 could bring a sizeable supply overhang if Middle East exports normalize and strategic stockpile rebuilding fails to soak up enough barrels. Even with inventories in some regions, including the United States, sitting near multi-decade lows after months of war-related strain, analysts increasingly believe replenishment demand alone may not be enough to prevent a glut.
“As Hormuz disruptions fade, the oil market is shifting from geopolitical fear back to oversupply risk.”
Why Hormuz Matters So Much
The Strait of Hormuz is one of the world’s most important energy transit routes, so even short-lived disruptions can send crude prices sharply higher. When traffic through the strait is threatened, buyers, shippers, and refiners often pay a premium to secure barrels, freight, and insurance. Once those risks ease, that premium can evaporate quickly.
This helps explain why a reopening or normalization of transit can have such an outsized effect on Brent. The move is not just about more barrels physically reaching market; it is also about the removal of fear-based pricing that had supported crude during the conflict period. If Middle Eastern prompt supply continues to increase, the market could face additional pressure on spot prices and near-term spreads.
Implications for Investors
For investors, a slide in Brent toward $60 would have uneven effects across asset classes. Integrated oil majors and upstream producers could face earnings pressure if lower benchmark prices reduce cash flow and squeeze realized selling prices. Companies with higher production costs or more aggressive capital spending plans may be especially sensitive if the futures curve softens further.
At the same time, lower crude prices could benefit industries exposed to fuel costs, including airlines, chemicals, transport, and some manufacturing segments. It could also ease inflation pressure, which would be relevant for bond markets and central bank expectations. If energy stops contributing to headline inflation, rate-sensitive sectors may find some support, even as energy equities underperform.
Investors should watch several signposts closely: whether the U.S.-Iran process advances beyond the current memorandum, whether Chinese crude demand stabilizes, and how fast global inventories rebuild. Another key variable is the size of any 2027 surplus. If the market really moves toward a 3 million barrel-per-day overhang, downside risks for crude-linked equities, high-yield energy credit, and oil-exporting currencies could increase materially.
The next phase for oil is likely to be defined less by shipping disruption headlines and more by balance-sheet reality in the physical market. If supply normalization continues and demand fails to accelerate, Brent crude may enter 2027 with a much lower ceiling than traders had expected only a few months earlier.
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