Australians Face Fuel Price Risk as Citi Predicts Higher Oil
Synopsis
Australians could face renewed pressure at the petrol pump after Citi warned oil prices may rise further if US-Iran negotiations remain difficult. The bank maintained its short-term Brent crude forecast at US$120 a barrel, saying markets may still be underestimating long-term geopolitical risks linked to the Middle East conflict. While lower Chinese oil imports and weaker demand have helped ease some pressure on global energy markets, analysts say any major disruption around the Strait of Hormuz could quickly send prices higher again. Rising oil prices could eventually affect fuel costs, transport expenses and household budgets across Australia.
The oil price could rise significantly if negotiations with Iran become challenging again, according to Citi, suggesting global markets could still be underestimating risks from the region.
Key Highlights
- Citi maintained its short-term forecast for Brent at US$120 a barrel
- Brent is expected to average of US$110 in Q2
- Bank warns US-Iran tensions remain key threats
- China's lower crude oil imports ease market pressure
- Analysts believe that the markets may be mispricing long-term risks
Crude Oil Outlook Darkens, Creating New Risk of Higher Fuel Prices for Australians
As per Citi, ongoing U.S.-Iran tensions could push global oil prices higher. The report says short-term risks to oil markets have increased due to heightened uncertainty surrounding negotiations. However, the bank's main expectation is that disruptions around the Strait of Hormuz will ease by late May. The bank maintained its zero-to-three Brent oil forecast of US$120 a barrel.
Oil Market Pressures Still Building
Citi forecasts Brent crude to average about US$110 a barrel in 2Q, easing to US$95 in 3Q and increasing further to US$80 by year-end. The bank said that in recent weeks several factors have eased pressure in global oil markets, including drawdowns, possible releases from the SPRs, weak global demand and signs that tensions in the Middle East may be easing. These have been aided by lower Chinese oil imports, with April and May data suggesting a reduction of up to 2.4 million barrels a day.
Why Australians Are Watching Closely
Higher oil prices globally could be passed from producers to consumers in Australia, who are already feeling financial pressure, through petrol and transport prices as tensions continue to mount. Citi warned that oil markets might still be underplaying the length and long-term risks of Middle East tensions. Some analysts have warned that any major disruption in the Strait of Hormuz, one of the world’s critical oil shipping routes, could spark another massive surge in global energy prices.
FAQs
- What can push oil prices higher still?
Risks to global oil markets from ongoing friction in US-Iran negotiations could be main reason, Citi said.
- What is Citi’s oil forecast?
The bank kept its US$ 120-per-barrel short-term Brent oil forecast.
- What is going on in Chinese oil imports?
In April and May, China's oil imports could have declined by around 2.4 million bpd.
- How will this impact Australians?
In Australia, this medium- and long-term impact from higher oil prices can be felt through the petrol price, transport cost or household expenditure.
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