COM - Bearish Citi analysts see crude oil tumbling toward low $70s next year

2023-10-03 19:30:36 ET

• Crude oil futures closed modestly higher Tuesday, a day after a three-session drop pulled prices to three-week lows in the wake of rising Treasury yields and a stronger U.S. dollar.
• Higher interest rates make storing and shipping crude more expensive, and the stronger dollar means crude is pricier for most buyers, which could eventually hurt demand.
• OPEC+ ministers will meet to review global markets on Wednesday, but the Joint Ministerial Monitoring Committee is not expected to recommend any policy changes .
• " The OPEC+ plan has been working ," as production cuts by Saudi Arabia and Russia have had the "intended effect of tightening the global oil balance and have convinced previously bearish speculators to turn bullish," "The OPEC+ plan has been working," according to Jim Burkhard, S&P Global Commodity Insights head of research for oil markets, energy and mobility.
• Front-month Nymex crude ( CL1:COM ) for November delivery ended +0.4% to $89.23/bbl and December front-month Brent crude ( CO1:COM ) closed +0.2% to $90.92/bbl, while Nymex November natural gas ( NG1:COM ) was +3.8% to $2.949/MMBtu for its best settlement since August 9.
• ETFs: ( NYSEARCA: USO ), ( BNO ), ( UCO ), ( SCO ), ( USL ), ( DBO ), ( DRIP ), ( GUSH ), ( NRGU ), ( USOI )
• WTI crude climbed nearly 29% in Q3 while Brent oil rose by more than 27%, but bearish Citi analysts do not expect crude to stay at its lofty levels, forecasting Brent to average $82/bbl in Q4 and $74/bbl for 2024.
• "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," Citi's Ed Morse and his team wrote.
• The Citi team noted rising production from non-OPEC+ members such as the U.S., Brazil, Canada and Guyana, while Venezuelan and Iranian exports also have grown.

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