Saudi Production Cut Unlikely To Support Sustained Strong Price Increase: Citi

Saudi Arabia’s pledge to cut oil output by 1mbpd looks unlikely to support a sustained oil price increase into the high-$80s to low-$90s range, Citigroup said in a note.

• Citigroup forecasts crude prices to reach $82/bbl at year-end, the bank said in a May note.
• The announced production cut by Saudi Arabia is unlikely to support sustained price increases as demand is looing weaker and non-OPEC supply is higher than previously forecast, Citigroup said.
• “Both OPEC and IEA forecasts have had an air of wishful thinking about accelerating demand growth by year-end,” it said.
• While Saudis had been keen on pinning price declines on short sellers, it was fundamentals that were driving prices down and money managers were just following the numbers, the bank said.
• Citi now even more bearish on demand in 2H versus start of the year, as Chinese demand turns out weaker than expected, while the US faces a weak driving season.
• “It would take surprisingly better coordinated action among OPEC+ producers to tighten markets if that is their wish.”