Citigroup analysts are projecting Brent crude will average $78/bbl in the second quarter and could continue to slide to $55/bbl by late next year.
The bank in a Sunday report said it continues to see a “spiky” first quarter for oil prices, thanks to crude supply and refinery disruption risks. The analysts said they expect OPEC+ will keep current production cuts in place through December, but still advised oil producers to hedge 2025 output in advance of what may be a sharp drop in prices.
The report predicted Brent will average $78 a barrel in the second quarter before sliding to $74/bbl in the third quarter and $70/bbl in the fourth quarter. Citi’s 2025 oil outlook is surprisingly bearish, with the bank forecasting a Q1 price of $65/bbl, followed by an average of $60/bbl in the second and third quarter. The price will then drop to $55/bbl in Q4, the bank said.
Some of the forecast values are as much as 28% below the forward futures’ curve. Citi said it expects West Texas Intermediate crude will remain at about a $5/bbl discount in the current quarter, then narrow to $4/bbl for the remainder of this year and through 2025.
The bank, which has consistently recommended producers hedge 2025 output, acknowledged that the amount of production under hedges has declined. Before the pandemic, U.S. and Canadian producers would hedge up to 45% of expected volumes, but that has declined to about 20% in recent years. Still, Citi said it believes crude oil hedging will increase later this year.
The bearish tilt is tied to concerns about OPEC+ spare capacity and new production from non-OPEC countries. OPEC+ spare capacity has risen by about 2 million b/d from pre-Covid-19 levels, it said.