Citigroup (Citi) recently released its latest forecast for the oil market, offering insights into what we can expect in the coming years. While the bank predicts that oil markets will remain balanced in 2024, assuming that OPEC and its allies maintain their current output cuts, it takes a more bearish stance for 2025. Citi anticipates a slowdown in demand growth and an increase in output from non-OPEC producers, which will impact market dynamics.

OPEC+ Output Cuts and Spare Capacity

According to analysts at Citi Research, they expect OPEC and its allies to extend their first-quarter 2024 output cuts into 2025. However, the producer group may choose to release some of its substantial spare capacity in the event of supply disruptions. This strategy aims to keep global oil markets finely balanced for 2024, potentially resulting in oil prices above $70 a barrel on a Brent basis. Moreover, rising tensions in the Middle East pose a near-term upside risk premium.

Updated Price Forecasts

Citi has revised its price forecasts for Brent crude and West Texas Intermediate (WTI). For 2024, the bank now predicts an average price of $74 a barrel for Brent crude (down $1 from the previous estimate) and $70 a barrel for WTI (down $1 as well). Looking further ahead to 2025, Citi has significantly lowered its projections by $10 a barrel for both benchmarks, now at $60 for Brent and $57 for WTI.

Challenges for OPEC+ in 2025

As we move into the next year, Citi highlights potential challenges for OPEC+ due to an anticipated large surplus despite extended production cuts. This suggests that maintaining market balance may become more difficult.

Demand Growth and Factors Influencing It

Citi's projections indicate a slowdown in global oil demand growth. In 2021, demand is expected to reach 1.3 million barrels a day, down from 1.9 million barrels a day in 2023. Furthermore, in 2025, Citi foresees demand growth slowing further to 700,000 barrels a day. Factors such as the increased use of electric vehicles in emerging markets and the post-Covid recovery in jet fuel demand coming to an end contribute to this declining trend. Citi also suggests that central banks' interest rate cuts will have little positive impact on oil demand.

Non-OPEC+ Oil Supply Growth

In terms of oil supply, Citi projects an increase driven by non-OPEC+ producers including the United States, Canada, Brazil, and Guyana. The bank estimates that non-OPEC oil supply will grow by 1.4 million barrels a day in 2024 and 1.2 million barrels a day in 2025. This growth is expected to be sufficient to cover global oil demand growth in both years.

These predictions from Citi shed light on the future of the oil market, highlighting the potential challenges for OPEC+, the anticipated slowdown in demand growth, and the rise in non-OPEC+ oil supply. As we navigate these dynamics, it will be crucial to monitor how these factors shape the industry moving forward.

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