(Reuters) – If producer group OPEC+ does not cut production further, average oil prices could fall to $60 a barrel by 2025 due to reduced demand and increased supply from non-OPEC countries, Citi said in a note on Wednesday.
Citi said that while a technical recovery was possible, the market could lose confidence in OPEC+ defending the $70 per barrel level if the group does not commit to extending current production cuts indefinitely.
If prices fall below $60, financial flows could push them further down, possibly to $50 a barrel before a possible recovery, Citi analysts said.
Geopolitical tensions were initially expected to push oil prices higher, but any recovery since October 2023 has weakened, Citi said. It added that the market now recognizes that tensions do not necessarily lead to reduced production or throughput issues, making rallies a selling opportunity.
The recent return of Libyan production and expectations that the disruption there will be short-lived given the lack of ongoing hostilities have led some market participants to resume shorting oil, the report said.
Citi recommends selling during rallies when Brent approaches $80 given current market dynamics.
Goldman Sachs responded to this changing outlook last week by cutting its 2025 average Brent forecast and price range by $5 per barrel, citing slower demand in China.
UBS, on the other hand, expects Brent to rise above $80 a barrel in the coming months, arguing that the oil market remains undersupplied despite weak Chinese demand as demand remains strong in other countries.
After last week’s price drop, market positioning could indeed trigger a near-term recovery, pushing prices closer to $80 per barrel, Citi said.
“However, demand for Middle Eastern oil is strong in the summer and the driving season is over, so the market is looking for a looser market.”
On August 1, OPEC+ confirmed a plan to phase out the latest cut – 2.2 million barrels per day – from October, with the caveat that this could be suspended or reversed if necessary.
However, OPEC+ is discussing a postponement of a planned production increase next month as oil prices hit their lowest level in nine months, three sources from the producer group told Reuters. [O/R]
