Oil prices fell around 3% on Thursday, having bounced from recent lows, as the market pivots on geopolitical dealmaking by Donald Trump and reactions from the OPEC oil producers' cartel.
Citi says prices are likely to fall further.
Brent crude dropped to $64.5 a barrel after having climbed to around US$66 a barrel earlier in the week, as the United States and China stepped back from the brink of further trade conflict, which lifted prices from recent lows around US$60.
A temporary 90-day reduction in tariffs has restarted negotiations between the two sides, helping to lift sentiment across markets.
Citi has nudged its near-term price outlook for Brent to US$60 for the next one to three months. However, it is keeping its second and third quarter averages at US$62 and US$63, respectively, still anticipating a pullback.
The bank sees the odds tilting toward a breakthrough in talks between Washington and Tehran, which could result in a new nuclear agreement.
Such a deal would likely ease sanctions on Iranian oil exports, adding supply to a market already watching demand with caution. That would weigh on prices.
Still, Citi cautions that any breakdown in those talks, especially if followed by further escalation, could send oil sharply higher. In that scenario, Brent could top US$70 a barrel.
Oil had previously sold off after OPEC and its allies announced a larger-than-expected rollback of production cuts in June.
The group, which includes Russia, plans to unwind around 400 thousand barrels a day of output curbs. Even so, prices found support as US producers signalled slower drilling activity in response to weaker price levels.
This week, the geopolitical spotlight is firmly on the Middle East and Eastern Europe.
US President Donald Trump is visiting Saudi Arabia, Qatar, and the United Arab Emirates, with discussions likely to include the future of the Iran nuclear accord.
Meanwhile, Ukrainian President Volodymyr Zelensky may hold talks with Russian President Vladimir Putin in Turkey.
With geopolitics back in focus and the balance of risks tilted in multiple directions, oil markets remain volatile.
Traders are watching not just supply and demand fundamentals, but the potential for headline-driven moves tied to diplomacy and dealmaking.
Brent is currently trading down 3.3% at around the $64 a barrel mark.
Following crude lower, BP PLC (LSE:BP.) lost 2.9%, while Shell PLC (LSE:SHEL, NYSE:SHEL) was off 2%.