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Citi Raises Oil Price Forecast

Citi Raises Oil Price ForecastCiti Raises Oil Price Forecast

Citigroup analysts raised their forecast for oil prices for this year and next due to rising demand and the potential for supply losses from some major suppliers.

Even as they raised their target, the Citi analysts explained the crosscurrents in the market and said they expect prices to be lower in 2019 compared to 2018 because of more supply coming to the market, CNBC reported.

The analysts raised their 2018 forecast for Brent crude by $5 to $6 per barrel, to an average $65 per barrel and they increased 2019 by the same amount, taking it to $55 per barrel. Brent futures were trading at $71.73 per barrel on Monday.

The strategists said they expected high volatility in oil prices to continue, due to the push-pull of geopolitical and policy risks.

Oil could be supported by the potential for more hawkish foreign policy from US President Donald Trump's new team, which could escalate tensions around both Iran and North Korea. The poor relationship between Russia and the West is also causing uncertainty in the oil market.

While geopolitical worries drive up prices, the market is also concerned about the potential negative impact on the economy, and oil demand and prices, from Trump's trade positions.

The strategists said there does not seem to be a breakthrough ahead in the near term between the US and China on trade and that could impact commodities in the second quarter, more than actual fundamentals.

"Most troubling for markets is that there is no sign that market turbulence will be coming to an end any time soon and global assets are likely to undergo an accelerated pace of risk on/risk off," the analysts noted. WTI could be weaker because pipeline bottlenecks for oil from the Permian Basin in Texas and the Cushing, Oklahoma, storage facility are getting worse, and more oil is being shipped by more expensive trucks and rail.

"WTI has a double-whammy bearish outlook," they wrote.

In 2019, there will be too much oil supply growth into next year from Canada, Brazil and elsewhere, along with the pipeline bottlenecks.

This could make that spread between Brent and WTI get even wider. The two are now trading about $5 apart in the futures market, but WTI could see as much as a $10 a barrel, or even $12, discount by the middle of next year.

 

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