Citi: Peace in East Could Send Oil Prices Tumbling

Oil prices may experience continued support in the immediate term, influenced by U.S. efforts to broker peace agreements involving Russia and Iran. However, a future resolution to these conflicts could potentially drive crude oil prices downward by the end of 2026.

Analysts at Citi have indicated that Brent crude, which has seen a recent rally to near $70 per barrel, is partly impacted by stricter enforcement of U.S. sanctions on Russian and Iranian oil. These sanctions, alongside other supply disruptions, have contributed to the price increase.

Citi's base case scenario anticipates that peace deals between Russia and Ukraine, and a de-escalation with Iran, will occur by or during the summer of 2026. This is expected to contribute to a significant decline in prices, with Brent crude potentially falling to $60-62 per barrel. Concurrently, diesel and gasoline profit margins could decrease by $5-10.

In anticipation of potential price strength bolstered by geopolitical tensions concerning U.S.-Iran relations, OPEC+ is reportedly leaning towards resuming oil output increases from April. This move is in preparation for peak summer demand.

Furthermore, China has been actively purchasing Russian and Iranian oil at a discount to global benchmarks. These acquisitions are for both immediate purchasing and strategic stockpiling. Citi expects this practice to persist through 2026 as long as sanctions on Russia/Ukraine and Iran remain in effect.