Citi's Morse lays out case for further oil price declines - FT interview  

Quantum Commodity Intelligence – CitiGroup's Ed Morse, a leading bearish voice among oil commentors for the past 18 months, has reiterated his negative outlook for crude oil, telling the Financial Times that markets will struggle for the remainder of 2023 and into next year.

Morse, Global Head of Commodities Strategy at Citibank said there is still plenty of supply out there, and the bullish faith of market 'cheerleaders' is misplaced. 

"Our basic judgment is that supply is going to outstrip demand in the second half of the year," he said in the FT interview published Tuesday.

The veteran oil watcher said Brent crude prices will not average much more than $82/b, while predicting next year they will be "well below" that level, with misplaced optimism in China a major factor.

"They [oil bulls] have a notion - that is reinforced by both the IEA and the OPEC Secretariat - that demand is going to really loom large in the second half of the year. They are super bullish on China finding a way to stimulate the economy in ways that the government has opted not to do so far."

But in reality he said, Chinese diesel demand has already peaked, with gasoline demand close to peak by the middle of the decade. 

"We think that a consensus in the market about China having multiple years of high demand growth is really a misunderstanding of where the drivers of demand have been in the country. "

Decoupling

Other factors cited include a decoupling of GDP growth and oil demand, as economic growth no longer carries the same weight for the oil market.

Prior to the pandemic, he noted a 1% GDP increment would add a half point of growth in oil demand, but that elasticity has dropped and the fall will get sharper. 

"We think people are underestimating the structural phenomena that are at work. They certainly bring down the relationship between GDP growth and oil demand," said Morse.

"If you get 4% GDP growth around the world, what is demand growth likely to be? You can be hopeful if you're on the environmentalist side and think it's going to be zero. Or I think you can be more realistic and say it's going to be less than 1%. And it may even be half a per cent," added Morse.

He also said supplies are increasing, pointing to growing volumes from the US, Brazil, Guyana, Australia, Argentina, Norway, Canada and even sanctioned Venezuela. 

"If world demand is not increasing at 2 million barrels a day. . . there's a lot of oil around."

Morse surmised that OPEC's options are limited saying that beyond Saudi Arabia, there does not seem to be much appetite for further cuts, while recent efforts have done little to support prices.

"I am sceptical about an organisation that has changed production outlook three times since October saying: 'Hey, this is permanent,'" said Morse.