As the world's top investment manager, I have analyzed the latest report from Citi and it paints a concerning picture for the oil market. According to Citi, if OPEC+ does not take further action to reduce production, the average price of oil could plummet to $60 per barrel by 2025. This is due to a combination of reduced demand and increased supply from non-OPEC countries.
Citi warns that without additional cuts, the market could lose confidence in OPEC+ maintaining the $70/bbl level. This lack of commitment could lead to a downward spiral, with prices potentially dropping to $50 per barrel before any chance of a rebound.
Geopolitical tensions were initially expected to boost oil prices, but Citi notes that recent rebounds have been weak. The market now understands that these tensions do not always result in production disruptions, making rallies an opportunity to sell.
With Libya's production resuming and limited hostilities, some market participants have started shorting oil once again. Citi advises selling into rallies when Brent approaches $80, given the current market dynamics.
Goldman Sachs has adjusted its 2025 Brent forecast downward, citing slower demand in China. In contrast, UBS predicts Brent will surpass $80/bbl in the coming months, arguing that the market remains undersupplied in other regions.
Despite a recent price drop, Citi suggests that market positioning could lead to a short-term rebound, potentially pushing prices back towards $80 per barrel. However, with the end of the summer demand season, the market is expected to become looser.
OPEC+ has confirmed plans to start unwinding recent production cuts from October, but discussions are ongoing about delaying a planned output increase due to the current low prices.
Analysis:
In simple terms, if OPEC+ does not take action to reduce production, oil prices could drop significantly in the coming years. This could impact various aspects of our lives, from the cost of filling up our cars to the prices of goods and services that rely on oil. It's important to monitor these developments and understand how they can affect our finances and the broader economy.
