Despite Saudi Arabia's energy minister's criticism of Goldman Sachs' bearish report, Wall Street banks are becoming increasingly pessimistic about the outlook for the oil market.
Citigroup said that as the popularity of electric vehicles and greater energy efficiency lead to weak oil demand, the oil market will be "massively surplus", coupled with oil production growth in countries outside OPEC+, oil prices may plummet by 2025.
According to the bank's base case, the price of global benchmark Brent crude will begin to fall from the fourth quarter of 2024 before stabilizing at $60 a barrel in 2025 as world crude inventories rise by 1.4 million barrels per day next year.
OPEC+ recently announced plans to gradually restore production by 2.5 million bpd from October 2024 to September 2025. Even if OPEC+ completely scrapped that plan, the market would still be in a surplus of 900,000 bpd, Citi analysts said in a report on Wednesday.
That's because global oil production, driven by North America, Brazil and Guyana, grows at a steady 1.8 million barrels per day in 2025, far outstripping slower demand growth of 900,000 barrels per day. "The slower demand growth reflects improved energy efficiency and the increase in electric vehicles," Citi analysts said. "It seems difficult for OPEC+ to keep prices high while returning their spare capacity to the market without disrupting supply."
According to Citi's base case, the specific time point for OPEC+ to restore production capacity will be delayed until mid-2025. If the group sticks to its announced plan, the oil market will have a surplus of 2.6 million barrels or more. In the bank's most pessimistic scenario, Brent crude oil prices could fall below $50 a barrel by the end of next year.
Citigroup pointed out that due to geopolitical conflicts and oversupply, Brent crude oil futures prices are expected to remain at $82 in the third quarter, and then start to decline, and will be under further pressure next year. Citigroup recommends that investors hedge the downside risks of oil prices and regard any short-term price increases as opportunities to establish bearish positions.
It's not just Citigroup that sees trouble ahead. Deutsche Bank analyst Michael Hsueh said OPEC+'s production increase plan will cast a bearish shadow over the next two years. "The market can absorb close to an additional 2.5 million barrels per day of oil? That's incredible," Hsueh said.
Deutsche Bank expects Brent to fall below $60 a barrel if OPEC+ fully implements its plan. However, the bank expects OPEC+ to increase production more modestly, with Brent falling to $75 a barrel by the end of 2025.
TD Securities also said that if OPEC+ continues to increase production, "oil market fundamentals may quickly begin to deteriorate" in 2025.
On Wednesday, the IEA also warned that by 2030, the world will be awash in oil, with production capacity exceeding demand forecasts by 8 million barrels per day. This would lead to levels of spare capacity only seen during the worst of the coronavirus pandemic, according to the IEA, and have major implications for OPEC members and the U.S. shale industry.
The article is forwarded from: Jinshi Data
