(World Oil) – Oil prices will continue to fluctuate wildly until it’s clear whether Iran and President Donald Trump will strike an agreement to end the war, according to Citigroup Inc.’s global head of commodities research.
“It’s very difficult to predict” if Iran is going to do a deal, Citigroup’s Max Layton said Thursday. “In that environment where you basically don’t know if there’s going to be a deal or not—very difficult to predict with this new leadership in Iran—you know you’re going to be subject to news and you’re going to be moving around like crazy.”
Oil trading this week underscored Layton’s point. Brent has climbed as high as $115.30 a barrel and tumbled to about $96 as traders vacillated between the prospects for peace or renewed hostilities. Crude fell Thursday for a third consecutive day, with both Brent and WTI below $100 amid new diplomatic efforts to end the war and reopen the vital Strait of Hormuz.
The move lower is on some “hope that we’ll talk about a deal,” Layton said.
Pressures on physical crude from the region remain. Loading delays at a vital Omani terminal outside of the strait in April upended schedules and may delay deliveries to buyers already starved of Middle Eastern supply, according to traders who asked not to be identified because they’re not allowed to speak to the media.
Layton said the physical crude market has a “decent buffer” of about 700 MMbbl to 800 MMbbl built up globally in the preceding 12 months. “We’re kind of eating through that aggressively,” he said, though the impact is going to be “much more kind of spread out over time.”
He added he will need to see whether Tehran is genuinely ready to come to terms with the US before he’d be ready to lower his oil forecast.
Last month, Citigroup raised its baseline Brent price forecast by $15 to $110 and pushed back its base case for the strait’s reopening to the end of May from mid-late April after a second round of U.S.-Iran peace talks failed to materialize.
“I think this regime can last not just months, I think this regime can last under blockade for years,” Layton said.
