The Citizens appeared to be heading towards a comfortable win against 20th-placed Sunderland after Fernandinho broke the deadlock inside 120 seconds at Etihad Stadium.
We have Liverpool and Chelsea on top of the table and we needed to add three points
But Sunderland striker Connor Wickham levelled in the 73rd minute before the youngster scored a brilliant counter-attacking goal to leave the visitors on the cusp of a famous win.
With City’s title hopes fading fast, Samir Nasri’s shot proved too strong for Vito Mannone as the former Arsenal man fumbled the ball into his own net, with the French midfielder missing a late chance to seal a dramatic win.
“It is not enough because we have Liverpool and Chelsea on top of the table and we needed to add three points – will see in the future what will happen but our chances are less,” Pellegrini told BBC Sport.
“The team missed a lot of things, the way we played, the way we defended and our character – we could not take out of our mind the game against Liverpool.
“At this moment it is more mental than physical. When it no longer depends on what you can do it is very frustrating but we must finish season the way we have done practically the whole season, we must try to win our last five games – and hope that team will do it.”
Pellegrini was keen to stress that he felt City were still suffering from their 3-2 loss at Liverpool at the weekend, adding Sunderland deserved a point.
“We did not play well but we had in our mind the game against Liverpool [on Sunday]. We did not deserve to win,” he added.
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