Citigroup has issued a stark warning about the future of oil prices, predicting a potential plunge to $60 per barrel by 2025 if OPEC+ fails to implement deeper production cuts. The bank’s analysts attribute this prediction to a combination of reduced demand and a surge in supply from countries outside the OPEC+ alliance.
Citi’s analysis points to the potential for a downward spiral in prices, with a drop to the $60 range triggering further financial outflows and potentially pushing prices even lower, potentially reaching $50 per barrel before any rebound. While Citi acknowledges the possibility of a technical rebound in oil prices, it emphasizes that the market’s confidence in OPEC+’s ability to sustain the $70 per barrel price level could be shaken if the group doesn’t commit to extending current output cuts indefinitely.
The bank highlights a shift in market perception, recognizing that geopolitical tensions don’t always translate into production disruptions or transit issues, turning price rallies into selling opportunities. Libya’s recent production recovery and the anticipated brief disruption, given the absence of sustained hostilities, have led some market participants to engage in short-selling oil.
Based on these factors, Citi recommends a strategy of selling into rallies when Brent crude oil prices approach $80 per barrel, considering the current market dynamics.
OPEC+ is currently considering delaying a planned output increase slated for next month, prompted by the recent decline in oil prices to their lowest point in nine months. The group had previously confirmed a plan to gradually unwind the latest round of cuts, amounting to 2.2 million barrels per day, starting in October. However, this plan remains subject to potential pause or reversal based on market conditions.
Goldman Sachs has also recently revised its Brent crude forecast, lowering it by $5 to a new range of $70-$85. The investment bank cited rising OECD inventories and weakened Chinese demand as contributing factors to this adjustment. Goldman Sachs further predicts that artificial intelligence (AI) could exert a downward pressure on oil prices over the next decade. AI is expected to reduce production costs and enhance recoverable resources, ultimately boosting supply. While AI’s impact on energy and metals has largely focused on the demand side, with anticipated increases in power demand, its effect on oil prices could negatively impact the incomes of producers, including OPEC+ members.