Citibank stands out as one of the most pessimistic among major financial institutions regarding oil prices, predicting a decrease into the $70 range later this year.
This projection is based on the expectation of substantial inventory buildup in the fourth quarter of 2024.
A Plunge to the $60s by 2025
Citi anticipates that oil prices will sharply decline to the $60 range by 2025. This prediction reflects a bearish outlook, even with the current robust demand and high prices. The bank attributes this anticipated drop to increasing stockpiles, particularly following a period of tight market conditions this summer.
Oil prices have rebounded from earlier losses in June, when the OPEC+ group hinted at a possible increase in supply in the fourth quarter, triggering negative market reactions.
As of Friday, the international benchmark Brent Crude was trading above $85 per barrel, while the U.S. benchmark WTI Crude exceeded $82 a barrel, driven by signs of tightening physical markets.
Factors Influencing Oil Prices
While the market anticipates strong demand during the third quarter, there are concerns that consumption growth might wane in the fourth quarter, potentially pushing oil prices downward.
Citi’s forecast is particularly pessimistic, predicting a drop to the $70s later this year and further decline to the $60s in 2025. This outlook is based on the expectation of significant inventory growth, as explained by Citi’s global energy strategist Eric Lee in a recent interview with Yahoo Finance.
Conflicting Views on Peak Oil Demand
Citi’s bearish perspective extends to long-term oil demand as well, expecting global demand growth to slow down and peak before the end of the decade. This contrasts with other forecasts, such as Goldman Sachs’ prediction that peak demand is still a decade away and will plateau rather than decline sharply.
Goldman Sachs maintains a more optimistic view, anticipating Brent crude to reach $86 per barrel this summer due to strong consumer demand, leading to a significant market deficit in the third quarter. The investment bank also sees a price floor of $75 per barrel for Brent, supported by physical demand for crude, particularly in China and the U.S. for replenishing the Strategic Petroleum Reserve (SPR).
Varying Forecasts and OPEC+’s Role
While most banks predict oil prices to remain above $80 a barrel this summer before declining in the fourth quarter and early next year into the $70 range, there are variations in specific predictions. JP Morgan, for instance, expects an average price of $75 a barrel next year.
Commodity analysts will closely monitor trends in interest rates and global economic growth, while also paying attention to OPEC+’s next move. Although the group has indicated a willingness to reverse some of the current supply cuts, it is unlikely to allow prices to linger in the low $70s or drop to the $60s, as many alliance members require higher prices to balance their budgets.