Citi Forecasts Decrease in Oil Prices by 2025

Citi predicts that oil prices will plummet to the US$60s range by 2025 as inventories build following a tight market this summer, signaling a bearish outlook despite current robust demand and higher prices.

Oil has recouped the losses from early June when the OPEC+ group's indication that it could begin returning some supply to the market in the fourth quarter sent bearish signals across the market.

Early on Friday, the international benchmark, Brent Crude, traded above US$85 per barrel, while the U.S. benchmark, WTI Crude, was above US$82 a barrel, as signs of tightening physical markets started to emerge.

The market expects solid summer demand in the third quarter but fears that the quarterly consumption growth will start waning in the fourth quarter, pressuring oil prices downwards.

Citi is one of the most prominent bears among major banks, expecting oil to drop into the US$70s range later this year and further down to the US$60s range in 2025 due to solid inventory builds.

"Global inventories will be building a lot next year," Citi's global energy strategist Eric Lee told Yahoo Finance in an interview this week.

"We do think that there is a bit of a tight stretch [with supply] through the summer, so we do see prices staying in the low- to mid-80s for a little longer," the strategist added.

"But as we're looking through the second half of the year into 2025, we really see markets getting a lot weightier."

Citi also expects global oil demand growth to slow down as "Oil demand can grow at a slower and slower rate relative to GDP and in fact peak before the end of this decade," Lee told Yahoo Finance.

Citi holds one of the most bearish near and long-term views on oil prices and demand.

Goldman Sachs, for example, said in a report this week that "Peak oil demand is still a decade away."

Earlier this month, the International Energy Agency said that global oil demand would peak before 2030. This forecast drew criticism from OPEC, whose Secretary General Haitham Al Ghais said that "peak oil demand is not on the horizon," and that IEA's forecast "is a dangerous commentary, especially for consumers, and will only lead to energy volatility on a potentially unprecedented scale."

Goldman's analysts, for their part, said, "While some prominent forecasters have predicted oil demand will peak by 2030, our researchers expect oil usage will increase through 2034."

"We think peak demand is another decade away, and more importantly, after the decade it takes to peak, it plateaus, rather than sharply declines, for another few years," write Nikhil Bhandari, co-head of Asia-Pacific Natural Resources and Clean Energy Research, and analyst Amber Cai in the team's report.

In the near term, Goldman Sachs sees Brent crude at US$86 per barrel this summer amid strong consumer demand, which will put the market into a sizeable deficit in the third quarter.

The investment bank also sees a floor of US$75 per barrel under Brent due to physical demand for crude, which tends to rise amid lower prices, including in China and in the U.S. for the refill of the Strategic Petroleum Reserve (SPR).

Most banks expect oil prices to hold above US$80 a barrel this summer and decline in the fourth quarter and early next year into the US$70 range.

JP Morgan expects oil prices to average US$75 a barrel next year, sliding from an expected range of US$80-US$90 this summer.

Commodity analysts will monitor trends in interest rates and global economic growth to use as assumptions for their forecasts later this year, but they will also closely watch OPEC+'s next move.

While the group has signaled willingness to begin unwinding part of the current supply cuts, the cartel and its non-OPEC allies led by Russia are unlikely to leave oil prices lingering in the low US$70s and plunging to the US$60s, as none of the alliance's producers can balance their budgets at these relatively low prices.