Citigroup is advising traders to short oil and oil products after the summer is over, after which the current oil price rally will be over.
A hurricane-and only a hurricane-is the one thing that could change the fatter supply outlook for the post-summer months. Citigroup's commodity research team warned traders that global oil demand typically peaks in August-but it went a step further, casting doubt on recent forecasts of tighter global crude oil supply from agencies including the Energy Information Administration (EIA), the International Energy Agency (IEA), and the Organization of Petroleum Exporting Countries (OPEC).
The IEA and OPEC are both estimating draws this year, and deficits next year, with the EIA sees a 100,000 bpd shortfall this year and a 200,000 bpd surplus next year.
But according to Citigroup analysts, the oil markets will see a 200,000 bpd surplus this year, and a whopping 1.8 million bpd surplus next year, with additional oil supplies coming from both within OPEC+ and out.
Citi warned traders that OPEC+ would have to cut deeper if they hoped to keep prices above $70 per barrel.
On Thursday, Brent crude was trading at $84.61 per barrel-up 1.39% on the day as both the API and EIA estimated stock draws for crude oil.
Citi says the reason for the significant divergence between their forecast and those other agencies are several flaws in the assumptions used-most notably, Iran and Iraq that have oil projects in the works. It also suggested that Venezuela and Nigeria-two countries that have been unable to pull their oil industries out of the doldrums for years-could also ramp up production.
"There is simply too little demand growth to expect markets to tighten from [emerging market] growth alone," Citigroup's report said.
By Julianne Geiger for Oilprice.com
Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More
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