Citigroup’s commodities team recently released a comprehensive report, forecasting oil prices for the fourth quarter of 2023. In this 85-page analysis, Citigroup suggests that current oil prices are overinflated by nearly $10 per barrel. They boldly predict that by the end of 2023, the average Brent crude oil price will be a modest $82 per barrel.
The forecast focuses on economic headwinds, indicating that global GDP growth in the coming year will likely be limited to a mere 1.7%. With reduced global trade expected among the three largest economies – U.S., China, and the European Union – the demand for energy is anticipated to be hampered. Additionally, Citigroup’s forecast implies a potential 0.25% increase in U.S. interest rates at the November Federal Open Market Committee meeting.
This report was composed after Brent crude settled at $92.20 per barrel on Friday.
Citigroup firmly asserts that oil prices ranging in the $90s are not sustainable, cautioning that high prices at present might lead to a downturn in 2024. The sequential quarterly price targets for Brent crude in 2024 are projected to be $80 per barrel, $73 per barrel, $74 per barrel, and $68 per barrel, while West Texas Intermediate prices will consistently be $4 per barrel lower.
When formulating its outlook for the next five quarters, Citigroup takes note of the current discrepancy between supply and demand, with demand exceeding supply by approximately 1.5 million barrels per day. However, the bank anticipates that by the end of this year, the global deficit will transition into a surplus of 200,000 barrels per day, followed by supply surpassing demand by 1.1 million barrels per day next year. Citigroup also estimates that the ongoing refinery turnaround season could potentially decrease crude processing by up to 3.8 million barrels per day.
In addition to the demand and supply dynamics, Citigroup’s forecast emphasizes the growth in supply expected in 2024. The bank projects a 1.2 million barrel per day increase in non-OPEC supply growth next year, while anticipating an additional 1.3 million barrels per day from the “Fragile Five” countries – Iran, Iraq, Libya, Nigeria, and Venezuela.
End of Summer Brings More Crude from Saudi Arabia
As the end of summer approaches, the Kingdom of Saudi Arabia is expected to increase its crude oil exports. According to a report, as temperatures begin to ease, Saudi Arabia could have an additional 400,000 b/d of distillate-rich crude available for export since they won’t need it for power generation.
Citi’s Predictions for Oil Prices
Citi has provided its predictions for oil prices, including a “bull case” scenario. In this scenario, oil prices are projected to reach $95/bbl in the fourth quarter of 2023 and $90/bbl in the first quarter of 2024. However, the base case scenario, which has a 60% probability attached to it, suggests lower prices.
Observations on Refinery Cracks and U.S. Crude Oil Production
The weekend commentary also made some observations on refinery cracks and U.S. crude oil production:
- Refinery cracks are expected to decrease from the “spectacular” levels seen during the summer and fall, but they will still remain above normal.
- U.S. crude oil production is forecasted to increase by 900,000 b/d by the end of 2023 and continue growing by approximately 400,000 b/d in 2024.
Recommendations on Gasoil/Diesel Cracks and Additional Distillate Exports
The bank recommends selling gasoil/diesel cracks due to the anticipated increase in crude oil availability. This is expected to result in more distillate-rich crude on the market during the winter. Additionally, Kuwait, Oman, and Qatar in the Middle East may also contribute to additional exports of distillate, with Chinese exports being a wildcard possibility.
Natural Gas Price Predictions
Citi expects U.S. natural gas prices to remain in the mid-$2/MMBtu range until late 2024, before recovering to about $4/MMBtu in 2025. The report also states that natural gas at the Dutch Title Transfer Facility is projected to reach approximately $12/MMBtu through 2024.
