Remember when JPMorgan said that oil could go to $380?
Just when everyone was bullish on oil prices, on Wall Street, some investment banks began to be bearish on oil prices.
On Tuesday, Citi analysts Francesco Martoccia and Ed Morse pointed out in the latest report that oil prices may fall to $65 per barrel by the end of the year and $45 per barrel by the end of 2023 due to the economic recession, which means Oil prices will fall 40% from current prices by the end of the year.
On Wednesday, Ed Morse further stated that the outlook for oil demand could be revised down further due to high oil prices:
Almost everyone lowered their expectations for crude oil demand this year. Citigroup cut its forecast by about a third to 2.4-2.5 million bpd, similar to the U.S. Energy Information Administration and the International Energy Agency (IEA).
At present, as global demand recovers, the world’s major economies are slowly recovering from the epidemic, which has also led to a surge in oil prices this year. While crude prices were hovering around $100 a barrel, Citigroup reiterated its base case for oil at $85 a barrel, adding that the increase in crude supply would “accelerate” by the end of the year, further driving crude prices lower.
International oil prices fell sharply for two consecutive sessions due to concerns over the economic recession dragging down crude oil demand. On Tuesday, Brent crude oil fell nearly 10%, and on Wednesday, brent fell below the $100 integer mark in intraday trading.
In a report on Tuesday, Citi said that assuming a recession and no OPEC+ intervention, oil investment falls in the short-term.
Citi believes that historical evidence shows that, in the case of oil, global demand turns negative only in the worst global recessions. Falling demand and continuity of supply cause commodity prices to fall in most recessions, and in some recession scenarios, oil prices will fall to “marginal cost”:
Overall, continued weakness in global crude oil demand will lead to higher crude oil inventories and lower prices.
In addition, sanctions against Russian oil by the European Union and other Western countries have distorted the market mechanism and will continue to be a headwind for the decline in global oil prices.