Citi lowers Brent price outlook for 2024 and 2025 on oversupply fears

Citi Research on Friday lowered its Brent price forecasts for this year and 2025, citing oversupply concerns but expects prices holding above $70 per barrel in 2024 as OPEC+ keeps global oil markets “finely balanced”.

Citi cut its 2024 Brent price forecast by $1 to $74 per barrel and slashed 2025 forecast by $10 to $60 per barrel, but said in a note that recent activity in the Red Sea causing further tension in the Middle East could see near-term upside to the risk premium.

The United States and Britain launched strikes from the air and sea against Houthi military targets in Yemen in response to the movement’s attacks on ships in the Red Sea, a dramatic regional widening of the Israel-Hamas war in Gaza.

Brent crude futures were trading around $79 a barrel at 0337 GMT on Friday, while U.S. West Texas Intermediate crude futures were trading around $73.60.

“We believe softer market fundamentals, absent major supply disruptions, will result in OPEC+ rolling over its Q1 2024 production cuts throughout the whole 2024 and start tapering them only in H2 2025,” analysts at Citi said.

Last month, the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, have pledged to cut 2.2 million barrels per day (bpd) for the first quarter of 2024.

“2025 looks to pose more challenges for OPEC+, as a large surplus looms despite extended production cuts, which in our base case is likely to make it increasingly difficult to protect $70/bbl on a Brent basis,” Citi noted.

Citi said global oil markets would likely flip into a 1.2 million bpd surplus on average, assuming OPEC+ starts tapering the production cuts in the second half of 2025.