Citigroup is analyzing multiple scenarios for crude oil prices as U.S.-Iran tensions escalate, with Brent crude futures trading around $71.42 per barrel. The bank's analysts warn that geopolitical risks have intensified following the U.S. military buildup near Iran, creating potential supply disruptions from the Middle East. Oil prices are poised for their first weekly gain in three weeks amid these concerns.

Citigroup's base case projects Brent crude averaging $67 per barrel in the first quarter of 2026, declining to $62 in the second half before stabilizing at $64 in 2027. This forecast assumes a moderate oil surplus of 0.8 million barrels per day in 2026, significantly smaller than the headline global surplus of 2.2 million barrels per day due to China's strategic petroleum reserve purchases and potential supply disruptions. The bank's bull case of $70-75 per barrel reflects sustained supply risks from Iran and Russia without Strait of Hormuz blockage.

However, Citigroup's bear scenario of $50 per barrel could materialize through weakened global oil demand growth combined with increased OPEC+ output. This would occur despite diplomatic breakthroughs that reduce China's stockpiling as discounts narrow. The bank emphasizes that any escalation into Strait of Hormuz transit disruptions would push prices higher, though their base case does not factor in prolonged waterway disruptions.