In a remarkable rally, oil prices surged by an average of 28% during the past quarter, hitting four-month highs. This meteoric rise was propelled by a combination of factors, including production cuts by OPEC+ and significant supply reductions initiated by oil giants Saudi Arabia and Russia. Despite the recent surge, Citigroup (Citi) analysts anticipate a decline in oil prices, projecting Brent crude to average $82 in the fourth quarter and $74 for the entirety of 2024. This pessimistic outlook is underpinned by several factors.
While Citi has adopted a bearish stance, Goldman Sachs and RBC Capital express bullish optimism. The contrasting views stem from varying perspectives on supply and demand dynamics in the global oil market.
Citi analysts point to the increasing supply from non-OPEC+ members such as the United States, Brazil, Canada, and Guyana as a significant factor suppressing prices. Furthermore, the resurgence of Venezuelan and Iranian oil exports has also contributed to the bearish sentiment, as these nations ramp up their production.
In stark contrast to Citi’s projections, investment heavyweights Goldman Sachs and RBC Capital have recently revised their price targets upward. Both firms now believe that oil could reach a staggering $100 per barrel within the next 12 months, citing the powerful momentum driving the market.
These bullish forecasts by Goldman Sachs and RBC Capital are predicated on the assumption that the current momentum, fueled by production cuts and supply constraints, can be sustained. If so, this could propel oil prices to unprecedented heights, providing significant opportunities for investors.
To navigate these conflicting predictions and make informed investment decisions in the oil market, it is imperative to comprehend the supply and demand fundamentals.
Recent data indicating low tank levels at U.S. storage hubs underscores the existing supply crunch, but this may not be sufficient to maintain high prices in the long term. Further reductions in OPEC+ output and constrained export shipments may temporarily support prices. However, Citi analysts caution that the sustainability of $90 oil prices is questionable given the substantial increase in supply from various sources.
In conclusion, the cautious perspective of Citi analysts regarding Brent prices highlights their doubts about the long-term viability of current highs, with projections indicating an average of $82 in the fourth quarter and $74 for the year 2024. The oil market remains shrouded in uncertainty, with analysts offering divergent outlooks. While the recent surge in prices has been remarkable, it may not be sustainable in the long run, given the increasing supply from non-OPEC+ members and the potential resurgence of Venezuelan and Iranian exports.
Investors are advised to stay vigilant, closely monitoring supply and demand dynamics, economic indicators, and geopolitical events that could influence oil prices.
Source: Yahoo Finance
