Oil could bounce; continue to recommend selling strength: Citi

Investing.com -- Analysts at Citi Research in a note dated Wednesday have indicated a potential short-term rebound in oil prices to the low-to-mid-$80s per barrel for brent crude. However, the investment bank maintains its bearish outlook for the longer term, forecasting an average price of $60/bbl for Brent in 2025.

Reasons for potential short-term rebound

• Tight oil balances: Citi highlights that global oil markets are currently experiencing a deficit of around 1.5-2 million barrels per day (bpd), primarily due to strong refining activity and robust August demand.

• Geopolitical risks: Increased tensions in the Middle East and North Africa, coupled with the ongoing hurricane season, could introduce supply disruptions, providing temporary support to oil prices.

• Underpositioned speculators: Light managed money positioning suggests potential for a short-term price increase as investors rebalance their portfolios.

Citi's long-term bearish outlook

Despite the possibility of a short-term price bounce, Citi remains steadfast in its bearish stance on oil for the next 12-18 months. The bank cites several factors supporting this view:

• Weakening demand: Global economic slowdown and the increasing adoption of electric vehicles in China are expected to dampen oil demand growth.

• Overcapacity: OPEC+ countries possess significant spare capacity, which could be deployed to offset potential supply disruptions and prevent price spikes.

• Non-OPEC supply growth: Robust oil production from non-OPEC countries is anticipated to further weigh on prices.

Focus on Kharg Island

Citi emphasizes the importance of Kharg Island, Iran's primary oil export terminal. The island's vulnerability to attacks and its historical role in disrupting oil exports highlight the potential for geopolitical tensions to escalate and impact oil prices.

Inventory data

• Global crude inventories: Decreased by 2.2 million barrels last week, with the US leading the drawdowns.
• US crude inventories: Fell by 3.7 million barrels, defying expectations of a smaller decline.
• US gasoline inventories: Increased by 1.3 million barrels, exceeding forecasts.
• US distillate inventories: Rose by 0.9 million barrels, surpassing expectations.