The commodities team at Citigroup over the weekend put out a fourth-quarter 2023 oil forecast, sending clients an 85-page report that suggests current oil prices are nearly $10/bbl too high, with a bold prediction that when 2023 ends, Brent will average just $82/bbl.
Economic headwinds are a theme in the forecast and Citi believes that global GDP growth next year will average no better than 1.7%. The three largest economies - U.S., China and the European Union - are likely to see reduced global trade that stunts demand for energy. Also implicit in the Citi forecast is one more 0.25% bump in U.S. interest rates at the November Federal Open Market Committee meeting.
The report was penned after a Friday close that saw Brent settle at $92.20/bbl.
Citi plainly declares that oil prices in the $90s are unsustainable and warns that higher prices now might create more downside in 2024. Sequential quarterly price targets for Brent in 2024 are $80/bbl, $73/bbl, $74/bbl and $68/bbl, with West Texas Intermediate numbers at a consistent $4/bbl discount.
In formulating its view for the next five quarters, Citi acknowledged that demand currently surpasses supply by about 1.5 million b/d. But the bank believes the global deficit will morph into a 200,000 b/d surplus by year's end and see supply outpacing demand by 1.1 million b/d next year. Citi estimates that the ongoing refinery turnaround season could reduce crude processing by as much as 3.8 million b/d.
Also critical to the bank's forecast is supply growth in 2024. Citi projects a 1.2 million b/d increase in non-OPEC supply growth next year and believes another 1.3 million b/d of additional oil could come from the "Fragile Five" countries of Iran, Iraq, Libya, Nigeria and Venezuela.
The end of summer also augurs for more crude from Saudi Arabia, the report noted. As temperatures ease, the Kingdom could have 400,000 b/d of additional distillate-rich crude for export since they won't need the fuel for power generation.
Citi also has a "bull case" for oil but it tops out at $95/bbl for the fourth quarter of 2023 and $90/bbl for the first quarter of 2024. The previously mentioned base case has a 60% probability attached to it.
Some other observations in the weekend commentary:
--Refinery cracks will fall from "spectacular" summer and fall levels but still stay well above normal.
--U.S. crude oil production will exit 2023 with a 900,000 b/d annual gain and continue to grow by about 400,000 b/d in 2024.
--The bank recommends selling gasoil/diesel cracks, believing that increases in crude oil availability will result in more distillate-rich crude on the market this winter.
--Additional exports of distillate will come from Kuwait, Oman and Qatar in the Middle East with Chinese exports a wildcard possibility as well.
--U.S. natural gas prices may remain in the mid-$2/MMBtu range into late 2024 before recovering to about $4/MMBtu in 2025. Citi believes that natural gas at the Dutch Title Transfer Facility will fetch about $12/MMBtu through 2024.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
(END) Dow Jones Newswires
10-02-23 1150ET
