Citi revised down on Monday its outlook for the WTI Crude price for next year by $5 to $49 a barrel, citing the global spike in coronavirus cases that is set to impact oil demand.
Two months ago, Citi was expecting oil prices to recover to $60 a barrel by the end of next year as the oversupply will have been drawn down by then, as major investment banks and analysts were fairly bullish on oil.
However, the surge in COVID-19 infections in recent weeks and the renewed lockdowns and curfews in major European economies—including France, the UK, Italy, and Germany—are pressuring oil prices downwards as the rebalancing of the oil market is once again slipping to a later than initially expected time.
In its note on Monday, Citi said that prices would be supported by OPEC+ not easing the cuts from January, as currently planned. The group will likely extend the cuts as-is through the end of the first quarter of 2021, according to Citi.
In recent weeks, market talk resumed that OPEC and its Russia-led allies would roll over the current cuts for another quarter to the end of March, considering the fresh lockdowns in Europe and the negative impact that they would have on global oil demand recovery.
In the clearest signal that OPEC+ is at least considering such a move, Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said on Monday that the current deal could be tweaked.
“I would go and argue it could be a tweak even beyond what the so-called analysts are talking about,” Prince Abdulaziz bin Salman told the ADIPEC conference, as carried by Reuters.
The comments from the Saudis, OPEC’s top producer and de facto leader sent oil prices surging by 8 percent early on Monday, with WTI Crude topping $40 a barrel as of 7:15 a.m. ET, also supported by a weakening U.S. dollar and Joe Biden’s victory in the U.S. election, which boosted the appetite for riskier assets and removed the election uncertainty from the market.