Citi’s global head of commodity research, Ed Morse, and his team have predicted that oil prices could surge towards $100 per barrel in the short term, driven by output cuts and geopolitical tensions. However, they believe these elevated price levels are not sustainable and anticipate a retreat by year-end.
The recent report suggests that Saudi Arabia’s willingness to withhold oil from the market, coupled with Russia maintaining export constraints, could drive prices upward in the short term. Nevertheless, with supply growth outpacing demand growth outside of Saudi Arabia and Russia, prices around $90 per barrel are considered unsustainable.
This upward trend in oil prices has been evident over the past three months, with West Texas Intermediate (WTI) rising by approximately $23 per barrel since late June, surpassing $91 recently. Brent crude futures have experienced a similar increase, rising over 30% during the same period and currently trading above $94 per barrel.
In contrast to this short-term surge, Citi’s analysts expect oil to average $84 per barrel in the fourth quarter of 2023 and anticipate it dropping into the low-$70 range in 2024. The note highlights that production is increasing among non-OPEC+ members such as the United States, Brazil, Canada, and Guyana. Additionally, exports from Venezuela and Iran have also risen.
The note suggests that these inventory dynamics should cap crude oil prices for the remainder of 2023 and 2024. It further adds that Saudi Arabia might reverse its cuts if the markets become overly tight.
In early August, Saudi Arabia extended its unilateral production cuts, while Russia reduced exports through year-end. These cuts were in addition to OPEC+ reductions announced last year.
While some analysts contemplate the possibility of oil reaching $100 per barrel in a momentum-based market, Morse cautions that “higher prices in the near term could make for more downside for prices next year.” This indicates the potential for a reversal in oil market dynamics as we move into 2024.