According to Citi, oil prices could surge to $100 a barrel in the short term due to recent developments in Saudi Arabia and Russia. The firm revised its projections for oil balances for the third and fourth quarters on Monday, following the extension of oil output cuts by the two countries until the end of the year. This pushed U.S. crude oil prices above $90 a barrel for the first time since November 2022.
Citi’s global head of commodities, Edward Morse, stated that geopolitical factors and the Saudi appetite to withhold oil from the market, along with Russia’s export constraints, are pointing towards higher prices in the short term. However, he also cautioned that higher near-term prices could lead to downsides next year and that the current $90 price level seems unsustainable due to faster supply growth than demand.
Last week, OPEC forecasted solid demand and warned of a supply deficit in 2023 if production cuts persist. Citi, while revising fourth-quarter balances, adjusted its demand outlook downward, citing global risks and uncertainties in China. Morse highlighted Chinese refined product exports as a wildcard, stating that increased export quotas could lead to higher refinery activity and more exports. This could ease tight diesel markets but potentially crash gasoline markets.
In August, inflation, as measured by the Consumer Price Index, saw its biggest monthly increase this year, rising by 5.6%. This increase included a surge of 10.6% in gasoline prices.
It is important to monitor how these developments in Saudi Arabia, Russia, and China will impact global oil prices in the short and long term.
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– CNBC’s Michael Bloom and Yun Li contributed reporting