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While many analysts see the latest Saudi oil cut surprise as bullish or at least moderately bullish for prices, Citigroup thinks that the 1 million bpd cut from the world’s top crude exporter is not likely to result in an oil price run-up to the high $80s or low $90s per barrel.
“The likelihood that Saudi Arabia would tackle this on its own on a sustained basis is quite low,” Citi said in a note on Tuesday carried by Reuters.
The bank, like other investment banks, believes the cut will lead to a wider deficit on the market in the second half of this year. But this doesn’t mean that prices will go up, according to Citi.
The bank, whose analysts have been bearish on oil this year, considers that the possibility for lower – instead of higher – prices could be greater, due to possible weaker demand due to recessions in the U.S. and Europe, weaker recovery in China, and higher supply from non-OPEC producers by the end of the year.
After the previous OPEC+ surprise for the market, when several large producers announced in early April additional cuts through the end of 2023, Citi was also contrarian and said it expected oil prices to dip instead of rally further despite OPEC+’s efforts in that direction.
Analysts reiterated on Monday calls for higher prices, following Sunday’s OPEC+ meeting after which Saudi Arabia said it would voluntarily reduce its production by 1 million bpd in July to around 9 million bpd.
ANZ analysts Daniel Hynes and Soni Kumari reiterated their $100 per barrel Brent target for the end of the year, saying that “Investors are likely to add bullish bets, comfortable that Saudi Arabia and OPEC will provide a backstop should the market hit any hurdles.”
Goldman Sachs, which sees Brent at $95 per barrel in December, described OPEC+’s meeting as “moderately bullish” to its forecast and offsetting some bearish downside risks such as higher supply from sanctioned Russia, Iran, and Venezuela and weaker-than-thought Chinese demand.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.