Citi predicts that oil prices will plummet to the $60s range by 2025 as inventories build following a tight market this summer, signaling a bearish outlook despite current robust demand and higher prices.
Oil has recouped the losses from early June when the OPEC+ group's indication that it could begin returning some supply to the market in the fourth quarter sent bearish signals across the market.
Early on Friday, the international benchmark, Brent Crude, traded above $85 per barrel, while the U.S. benchmark, WTI Crude, was above $82 a barrel, as signs of tightening physical markets started to emerge.
The market expects solid summer demand in the third quarter but fears that the quarterly consumption growth will start waning in the fourth quarter, pressuring oil prices downwards.
Citi is one of the most prominent bears among major banks, expecting oil to drop into the $70s range later this year and further down to the $60s range in 2025 due to solid inventory builds.
"Global inventories will be building a lot next year," Citi's global energy strategist Eric Lee told Yahoo Finance in an interview this week.
"We do think that there is a bit of a tight stretch [with supply] through the summer, so we do see prices staying in the low- to mid-80s for a little longer," the strategist added.
Related: Supply Concerns and Demand Optimism Are Boosting Oil Prices
"But as we're looking through the second half of the year into 2025, we really see markets getting a lot weightier."
Citi also expects global oil demand growth to slow down as "Oil demand can grow at a slower and slower rate relative to GDP and in fact peak before the end of this decade," Lee told Yahoo Finance.
Citi holds one of the most bearish near and long-term views on oil prices and demand.
Goldman Sachs, for example, said in a report this week that "Peak oil demand is still a decade away."
Earlier this month, the International Energy Agency said that global oil demand would peak before 2030. This forecast drew criticism from OPEC, whose Secretary General Haitham Al Ghais said that "peak oil demand is not on the horizon," and that IEA's forecast "is a dangerous commentary, especially for consumers, and will only lead to energy volatility on a potentially unprecedented scale."
Goldman's analysts, for their part, said, "While some prominent forecasters have predicted oil demand will peak by 2030, our researchers expect oil usage will increase through 2034."
"We think peak demand is another decade away, and more importantly, after the decade it takes to peak, it plateaus, rather than sharply declines, for another few years," write Nikhil Bhandari, co-head of Asia-Pacific Natural Resources and Clean Energy Research, and analyst Amber Cai in the team's report.
In the near term, Goldman Sachs sees Brent crude at $86 per barrel this summer amid strong consumer demand, which will put the market into a sizeable deficit in the third quarter.
The investment bank also sees a floor of $75 per barrel under Brent due to physical demand for crude, which tends to rise amid lower prices, including in China and in the U.S. for the refill of the Strategic Petroleum Reserve (SPR).
Most banks expect oil prices to hold above $80 a barrel this summer and decline in the fourth quarter and early next year into the $70 range.
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JP Morgan expects oil prices to average $75 a barrel next year, sliding from an expected range of $80-$90 this summer.
Commodity analysts will monitor trends in interest rates and global economic growth to use as assumptions for their forecasts later this year, but they will also closely watch OPEC+'s next move.
While the group has signaled willingness to begin unwinding part of the current supply cuts, the cartel and its non-OPEC allies led by Russia are unlikely to leave oil prices lingering in the low $70s and plunging to the $60s, as none of the alliance's producers can balance their budgets at these relatively low prices.
By Tsvetana Paraskova for Oilprice.com
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How could Citi's forecast be true when market fundamentals continue to be solid, global oil demand very robust, China's and India's crude imports breaking records and the half of the world that is led by China, the China-led Asia Pacific region growing fast with inflation at its lowest?
Though it might be accused of being optimistic about global oil demand, OPEC+'s forecasts are virtually the ones worth following because it has an excellent track record based on astute reading of market trends.
Therefore, here are your takeaways:
1- An oil demand peak is far away into the future.
2- Oil and gas will continue to drive the global economy throughout the 21st century and probably far beyond.
3- There is no alternative to oil and gas for the next 100 years.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert
According to them the collapse is always 6-12 months away.