SINGAPORE (Bloomberg) — Citigroup Inc joined Goldman Sachs Group in backing commodities, saying it’s the season to have faith in raw materials and oil will probably rally to the mid-$60s by the end of the year.
While U.S. shale output may come “roaring back” amid higher crude prices, production curbs by OPEC and its allies should help offset that increase over the next six to nine months, Citi analysts including Ed Morse and Seth Kleinman wrote in an April 17 report. The producers need to extend their deal to cut supplies through the end of the year amid concerns that Russia is lagging behind on its pledged reductions, the bank said.
While the historic agreement between producers that went into effect January 1 “induced a euphoric and unsustainable surge” in bullish bets by investors, that also set the stage for an inevitable sell-off as record fourth-quarter OPEC output and oil stored at sea moved to onshore sites, according to Citigroup. Goldman Sachs has also made similar comments, saying ample inventories that have undermined the output cuts are set to shrink and calling for more patience from the market.
“With a continuation of the OPEC and non-OPEC producer deal in the second half of 2017 and the expected associated inventory draw-down, we expect oil prices to move above $60/bbl by the second half of the year,” the analysts wrote in the note. Still, increased supplies from producers in the fourth quarter of 2016 is now “a dark cloud hanging over the market,” and a failure to extend the output agreement would send prices “precipitously lower,” they said. (by Serene Cheong, Bloomberg)