The broad mood in the oil market remains bearish, although there are discrepancies as to how gloomy crude’s prospects are, according to Citigroup Inc., summarizing views from clients in North America and Europe.
“Conviction differs on the depth of downside,” analysts including Francesco Martoccia said in a note. “Some clients doubt that a price floor at $60 a barrel for Brent crude oil would be enough to induce a supply-and-demand reaction to balance a global liquids market generally seen heading for a surplus.”
Oil prices have shed more than 10% this year, with global benchmark Brent posting back-to-back monthly losses in August and September. The weakness has been driven largely by expectations that supplies will run ahead of demand as OPEC+ loosens output curbs and rival drillers also step up production. Still, stockpiling by China has acted to support the market, with inventory builds so far seen concentrated away from the market’s main pricing centers.
“Other clients expect a more moderate, orderly price correction, arguing that projected stock builds could continue to accumulate outside of key pricing hubs, certainly ex-Cushing,” the analysts said, referring to the storage hub in Oklahoma that’s the physical delivery point for West Texas Intermediate.
The Organization of the Petroleum Exporting Countries and its allies endorsed another quota hike last weekend, although the increment — 137,000 barrels a day for November’s production — was smaller than some of the sums that had been reported in the run-up to the gathering.
“Today’s slower non-OPEC+ growth and greater OPEC+ optionality, along with heightened geopolitical risks looming on large producers” such as Russia and Iran, could temper the pace of price adjustment, the analysts said.
Brent futures — which tumbled 8% last week ahead of the OPEC+ supply decision — traded slightly lower at $65.80 a barrel on Thursday.
“Within the energy complex, consensus sees fundamentals turning increasingly bearish on both crude oil and natural gas, but geopolitical risks make it hard to short these markets in size,” the analysts said.
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