Citi's Morse reiterates case for lower oil prices, sees Brent in $70s/b
Quantum Commodity Intelligence – CitiGroup's Ed Morse, viewed by many as the leading bearish voice among senior oil commentators, has reiterated his negative outlook for crude oil in telling Bloomberg TV that Brent prices are set to fall into the $70s/b range by Q2 next year.
Morse, Global Head of Commodities Strategy at Citibank, said that the drag on oil demand in China, Europe and the US was weighing heavily on crude prices, in turn offsetting potential gains from OPEC+ supply cuts.
Modest growth forecasts for major oil-consuming economies next year are likely to hit oil demand growth and create a surplus, reversing the current deficit between supply and demand.
Morse also said that China is increasingly playing a balancing role by using its huge reserves amounting to 130 days of domestic demand versus international guidelines for developed countries of around 90 days.
"It's got a role that is almost as important as OPEC+ and they've been playing this role since the financial crisis when they discovered the benefits of buying oil when the price was low and selling, mostly products, when the price was high," said Morse.
Morse estimated that China's crude and product inventory stands at 1.4 billion barrels, giving the world's largest crude importer significant leverage over the market.
The interview with Bloomberg TV came after Citi updated its forecasts for next year with quarterly price targets for Brent at $80/b, $73/b, $74/b and $68/b, with WTI valued around $4/b under Brent.
"The Saudi appetite to withhold oil from market, supported by Russia maintaining a certain level of export constraint, points to higher prices in the short-term, all else equal, but $90 prices look unsustainable given faster supply growth," said the client note.
The Citi report highlighted production growth among non-OPEC+ members like the US, Brazil, Canada, and Guyana all adding to the supply side.
Additionally, Morse also flagged the potential upside for oil output growth from Iran, Iraq, Libya, Nigeria and Venezuela, which he told Bloomberg will continue to grow, adding around 1 million bpd next year.
