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Citigroup lowers base case 2015, 2016 crude oil price outlook

NEWS
By Reuters | August 17th 2015

Citigroup Inc lowered its base case price outlook for 2015 and 2016 crude oil prices citing weak market fundamentals, including an increased supply from the Organisation of the Petroleum Exporting Countries (Opec) and challenging demand growth in China and emerging markets.

“Huge crude and product inventories are likely to bloat further during refinery maintenance season and expected production growth out of Iran and Iraq should exacerbate this further,” analysts with the US bank said in a note on Friday.

Citi lowered its base case Brent price forecasts to $54 per barrel for 2015 and $53 in 2016 from $58 and $63, respectively.

It also lowered its 2015 and 2016 West Texas Intermediate (WTI) price forecasts to $48 per barrel from its prior view of $53 and $56, respectively. Citi said it assigns a probability of 55 percent to its base

“It is now clear that neither a V- nor a U-shaped oil price recovery is in order,” the investment bank said. Geopolitics are putting a heavy ceiling on prices, the bank’s analysts said, citing Saudi Arabia raising the stakes in its effort to gain market share, and stabilising energy sector in Iraq and supply from Iran.

“Increasing demand, disrupted supply, and falling marginal production (including US shale) all seem incapable of lifting prices significantly back to earlier trading ranges,” the bank said.

US crude oil steadied on Friday after falling to its lowest in almost six-and-a-half-year low as huge stockpiles and refinery shutdowns heightened concerns about global oversupply. In the past month, Brent has fallen about 19 per cent and WTI has dropped about 26 per cent.

WEEKLY LOSS

US crude oil edged higher after posting a seventh weekly loss amid concerns over global oversupply, while Brent futures slipped as the front-month September contract approached expiration. Data showing North Dakota crude oil production rose a second straight month in June helped pull US crude off its session high, along with the stronger dollar.

“Producers don’t seem to want to blink,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut, commenting on the North Dakota data. Producers in the United States added two oil rigs last week, a fourth straight week with additions, energy services firm Baker Hughes Inc said.

US crude bounced off a fresh 2015 low and then received a lift from data showing producer prices rose for a third straight month in July.

US September crude settled at $42.50 a barrel, up 27 cents, and continued to seesaw in post-settlement trade. It reached $42.96 after falling to $41.35, the lowest front-month price since March 2009, and finished off more than 3 per cent for the week.

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