- The United States and Iran have approved an agreement to end the war, promoting the normalization of trade routes in the Strait of Hormuz. Citigroup has significantly lowered its Brent crude oil price forecast, predicting it will fall to $70 per barrel in the fourth quarter of this year.
- In the same report, Citigroup has contrarily raised the short-term target prices for precious metals, increasing the 0 to 3-month gold price forecast to $4,500 per ounce and the silver price forecast to $70 per ounce.
- The commodity market is reacting immediately to geopolitical changes, with both Brent crude oil futures and gold futures prices slightly declining during the Asian trading session. The market is digesting the details of the agreement and the repricing of medium-term navigation premiums.
Geopolitical Agreement Reshapes Oil Supply and Demand Benchmarks
In its latest report, Citigroup (Citi) has lowered its average Brent crude oil price forecasts for the third and fourth quarters of this year to $75 and $70 per barrel, respectively. The core logic behind this adjustment stems from the agreement between the United States and Iran to end the war. Although the specific details of the agreement have not been fully disclosed to the market, both parties are scheduled to sign formal documents in Switzerland this Friday. Citi's analyst team believes that the signing of this agreement will directly facilitate the restoration and gradual normalization of trade flow through the critical oil transport hub, the Strait of Hormuz, thereby eliminating the long-standing geopolitical risk premium.
Expectations of Navigation Normalization Lead to Reassessment of Route Premiums
Regarding the longer-term trends in the energy market, Citi has lowered its 2027 average Brent crude oil price forecast from the previous $80 per barrel to $65. In its newly constructed baseline scenario, the signing of the US-Iran memorandum will ensure that the Strait of Hormuz returns to approximately normal navigation rates around mid to late July, with the probability of this scenario currently set at 60%. Analysts point out that the current commodity market mainly reflects the immediate sentiment of the agreement signing, without fully accounting for the mechanisms that can ensure medium-term flow through the strait. If the market fully establishes confidence in the normalization of medium-term navigation, oil prices could be about $10 to $15 per barrel lower than current levels.
Precious Metals Target Prices Raised Against the Trend
In stark contrast to the pressure on the energy market, Citi has significantly raised the pricing targets for precious metals in the short term. The report has sharply increased the 0 to 3-month gold price forecast from $4,000 per ounce to $4,500, while the silver price forecast has been raised from $60 per ounce to $70. The analyst team explains that with the easing of geopolitical conflicts, broader macro risk sentiment is expected to improve marginally. Although the demand for market hedging faces reassessment after the conflict ends, the macro liquidity environment and shifts in risk asset preferences are expected to provide new liquidity support for precious metals.
Increased Volatility in Long-term Gold and Industrial Metals Positioning
In the long-term outlook, Citi still maintains a bullish threshold for gold prices at $5,000 per ounce over the next 6 to 12 months. However, the report also issues a compliance warning to investors, indicating that significant fluctuations and high volatility will accompany the market as gold prices move toward this target. Additionally, on a global macro allocation level, although industrial metals like aluminum have experienced some valuation adjustments following the news of the US-Iran memorandum, Citi believes that the fundamentals have not undergone a fundamental reversal. Therefore, it suggests that investors adopt a strategy of buying on dips at current price levels.
