Oil prices are expected to surge to $100 per barrel in the near term, driven by recent developments in Saudi Arabia and Russia, according to Citi. The financial firm revised its oil balance forecasts for the third and fourth quarters upwards following the extension of oil output cuts by both countries until the end of the year. Consequently, U.S. crude oil prices have exceeded $90 a barrel for the first time since November 2022.
On Monday, West Texas Intermediate crude (WTI) reached $91.70, its highest level since November 8, 2022, while Brent crude climbed to $94.78, marking its highest point since November 16, 2022. Edward Morse, Citi’s Global Head of Commodities, noted that “geopolitics could push oil over $100 for a short while.”
Morse emphasized that Saudi Arabia’s willingness to limit oil production, coupled with Russia’s commitment to export constraints, suggests higher prices in the short term. However, he also cautioned that elevated prices in the near term could lead to more downside next year, with the current $90 price level appearing “unsustainable” due to supply growth outpacing demand.
Last week, OPEC issued updated forecasts indicating strong demand and the potential for a supply deficit in 2023 if production cuts continue. While Citi revised its fourth-quarter balances, it also lowered its demand outlook, citing global and Chinese risks. Morse highlighted Chinese refined product exports as a wildcard, suggesting that increased product export quotas provided by the Chinese government could lead refiners to operate at higher capacity and export more.
In August, the Consumer Price Index recorded its largest monthly increase this year, rising by 5.6%, which included a 10.6% surge in gasoline prices.
Oil prices continued to rise on Monday due to expectations of a tighter market. U.S. crude futures were up 1.1% at $91.03 a barrel, while the Brent contract rose 0.9% to $94.75. Both contracts remained near their highest levels since November 2022, having gained over 30% in the past three months due to supply cuts by Saudi Arabia and Russia.
The two nations recently announced that their combined 1.3 million barrels per day cuts would extend until the end of the year, potentially resulting in a 2 million barrels per day deficit in the fourth quarter.
Key central bank meetings are set to take place this week, headlined by a two-day Federal Reserve gathering ending on Wednesday. The Federal Reserve is expected to maintain its hawkish outlook, particularly after recent inflationary trends, which could put additional pressure on the U.S. economy and potentially reduce its appetite for oil.
Other central bank meetings scheduled for this week include the Bank of England, which is expected to raise interest rates again on Thursday, and the Bank of Japan, which may shift away from the substantial monetary stimulus of the past decade. Last week, the European Central Bank raised its key deposit rate to a record high of 4% but also signaled that this would likely be its final rate hike as it downgraded its growth forecasts.
