Saudi Arabia’s efforts to deepen output cuts are unlikely to provide a sustainable boost to oil prices in the high $80s-low $90s range, according to a note from Citi on Tuesday.
While other brokerages suggest a larger deficit in the second half, Citi analysts highlight weaker demand, increased non-OPEC supply, potential recessions in the U.S. and Europe, and slower growth in China as factors that could drive prices lower in 2023 and 2024.
Citi stated that it is unlikely Saudi Arabia can address this issue alone in a sustained manner.
Citi predicts Brent crude to remain range-bound, with an average price of $81 per barrel this year. Despite Saudi Arabia’s announcement, oil prices retreated, and Brent crude was trading around $75 per barrel due to concerns about global economic growth.
Saxo Bank strategist Ole Hansen explained that Saudi Arabia would need a ten-dollar increase in crude oil prices to offset the revenue loss from the one million barrels cut.
The primary drivers of oil prices continue to be worries about global growth and demand, not only in China but also in the United States and other key consumer markets, according to Hansen.
HSBC maintains its forecast of $93.5 per barrel for Brent crude in the second half of 2023, citing negative macroeconomic factors that are expected to counterbalance the impact of the output cuts.
On a slightly more positive note, UBS analysts project Brent crude reaching $95 per barrel by the end of 2023, with a supply deficit surpassing 2 million bpd. They anticipate the market to remain in a “meaningful deficit” due to the extended voluntary cuts agreed upon by OPEC+ until the end of 2024.
Barclays expects the voluntary reduction by Riyadh to marginally increase deficits in the second half of 2023.
Additional analysts have also suggested that global supply shortages may intensify in the third quarter, leading to Brent crude potentially reaching $100 per barrel by the end of the year.
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