USO - Saudi production cut unlikely to boost oil prices to high $80s-low $90s Citi says

2023-06-06 12:45:58 ET

Saudi Arabia's latest 1M bbl/day oil production cut looks "unlikely to underpin a sustainable price increase" into the high $80s or low $90s, as weak fundamentals point to lower prices by year-end , Citi analysts said Tuesday.

Citi sees average quarterly prices fairly range-bound for the year, with Brent crude averaging $81/bbl in both H1 and H2, citing factors such as weaker demand and stronger non-OPEC supply by year-end, potential recessions in the U.S. and Europe, and lower growth in China.

If Saudi Arabia keeps production at 9M bbl/day throughout Q3, the deficit during the period would widen to more than 1M bbl/day and leave global oil markets finely balanced in 2023, but markets would still face a large surplus in 2024, according to the Citi team.

"It would take surprisingly better coordinated action among OPEC+ producers to tighten markets if that is their wish," Citi said.

Crude oil prices erased all gains that followed the Saudi weekend pledge for extra supply cuts before rebounding somewhat; July WTI crude oil ( CL1:COM ) currently -0.4% to $71.81/bbl and August Brent crude ( CO1:COM ) -0.6% to $76.26/bbl, after the front-month WTI contract ended last week at $71.74/bbl and Brent crude closed at $76.13/bbl.

ETFs: ( NYSEARCA: USO ), ( BNO ), ( UCO ), ( SCO ), ( DBO ), ( USL ), ( DRIP ), ( GUSH ), ( USOI ), ( NRGU )

Other analysts said a global shortfall in supply will deepen in Q3 following the Saudi cuts and could push Brent in the. direction of $100/bbl by year-end.

Decisions taken at the OPEC+ meeting were "moderately bullish," Goldman Sachs said, and Macquarie said the Saudi move seems "unambiguously" positive for prices in the near term.

More on oil:

• Saudi Arabia's Oil Production Cuts And How To Profit From Them
• Oil Pops On Unnecessary Action By OPEC+
• IYE: Oil Prices Shouldn't Collapse Despite How Badly The Market Wants It

For further details see: