After hitting a 10-week high at more than $125/b in mid-June, Brent crude futures have ceded ground in volatile trading as concerns over a global economic slowdown trumped the impact of Western sanctions on Russian oil supplies.
Global markets steadied early July 6 a day after the euro dropped to a two-decade low against the dollar and Brent crude futures slumped almost 10% to trade at their closest to $100/b since April 26. The rout was the third-largest absolute price drop since Brent futures trading started in 1988.
According to Bloomberg, this warning is contained in a report by Citigroup, where it stated that the assumption for this forecast is based on global recession, lack of intervention by the Organization of Petroleum Exporting Countries and its allies (OPEC+) to boost supply and decline in oil investments.
The global crude benchmark, the Brent crude, traded at $103.2 per barrel as at Tuesday evening, while the American WTI traded at $99.26 per barrel.
What Citigroup analysts are saying?
Citigroup analysts including Francesco Martoccia and Ed Morse, in the note wrote, “For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions.
‘’But oil prices fall in all recessions to roughly the marginal cost.’’
According to Citigroup forecast, the price of crude oil will fall by -56.22 per cent within the next one year and six months, when compared to the current cost of $102.8 per barrel, dropping $57.8 during the period.
Citigroup stated that the dip in price will be driven by dwindling oil investments and global recession, considering demands for the product usually falls during the period, negatively affecting the cost of oil in the global market.
What Goldman Sachs analyst are saying?
While Citigroup forecasted that crude oil price will fall to $65 by the end of 2022, Goldman Sachs had forecasted that crude oil would sell at $140 between the last six months, stating that while the price was “tremendously high right now”, it presents an opportunity for buyers to invest, as the price still has a long way up.
The recent pullback in oil prices could be a buying opportunity because prices are set to go higher from here this summer, according to the Wall Street bank.
“The bottom line is the situation across the energy space is incredibly bullish right now. The pullback in prices we would view as a buying opportunity,” Goldman’s Currie told CNBC today.
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