Citi's Morse sees Brent prices below $80/b, 'flirting' with $60s/b

Quantum Commodity Intelligence – Benchmark Brent crude prices are poised to fall below $80/b despite the recent output cuts announced by a number of OPEC+ producers, according to Ed Morse, global head of commodities research at CitiGroup.

Speaking to Bloomberg TV, Morse said that weaker-than-expected demand growth and higher production would offset the OPEC+ reductions, although broader support will come from relatively low inventory levels and prevent a full-scale price collapse.

"The market has changed from a point of massive oversupply in our judgment to one of market tightness, but still with the risks to the downside," said Morse, referencing new oil supplies coming to the market.    

"We won't have the underlying fundamentals of a price crash but we think prices could go down much below the preferred OPEC+ price of $80/b, to $70/b and even touch below that."

Morse said that market mechanisms supporting prices are likely to kick-in a the lower levels, including US government buying for the Strategic Petroleum Reserve and China accelerating its inventory build.

"I'd say we might be flirting with the $60s but not for long".

Morse added China's much-touted demand recovery has been slower than expected, while the prospect of economic slowdowns in the West are capping demand.

"We're waiting to see what's really happening with the economy, but it is a slower recovery. If anything, that will be an end-of-year phenomenon," he said, referencing China.

"US demand has not really grown, but production has grown and all of that (new output) has moved into the export pool, taking away market share from other countries."    

Since the post-pandemic demand and price rebound, Morse has been among the most bearish voices on the prospects for oil, typically taking he opposing view of his opposite number at Goldman Sachs, Jeff Currie.

Currie recently reiterated Goldman's forecast for Brent to move back above $100/b this year.