Crude oil could end the year selling at $60 per barrel if a call by Citigroup senior energy analyst, Eric Lee, is anything to go by, it has
The call is hinged on what is seen as a likely acceleration in global demand and reduced supply of the commodity by the Organisation of Petroleum Exporting Countries (OPEC) which is expected to push prices of crude up to that level, according to research by Lee.
The commodity, for which Nigeria, Africa’s largest economy by gross domestic product (GDP), depends on in large part to finance its budget,
has been hovering in the $43-$46 region in the last two weeks. Nigeria’s current budget is predicated on crude selling at an average price of
$44.5 per barrel and this projection of a crude oil price of $60 per barrel would be cheery news to government officials who are looking to see less pressure on revenue generation.
The call by the Citigroup senior energy analyst is being taken seriously in the analysts community because he had previously called for a bear market in oil when price was above $100, reports Reuters.
Fall in prices in recent weeks, sometimes to just over $44 for Brent Crude, is believed to have made Lee a short-term bull.
A record high of 97.3 million barrels per day demand in 2017 is being projected by Lee. This is seen as a record high given that in 2016, demand was 96 million that was driven largely by emerging market countries such as China and India.
Simultaneously, reduction in supply from OPEC of about 0.7 million barrels a day versus the 2016 average should drive the price up before
the end of the fourth quarter, according to a Reuters filing.
A decline in global oil inventories began after the first quarter, and Lee projects that it will continue at an accelerated rate through the end of this year.
Oil prices settled nearly 3 percent lower on Friday as rising U.S. production and an increase in OPEC exports to a 2017 high cast doubt on
efforts by producers to curb a persistent glut.
Matt Smith, director of commodity research at Clipperdata, said OPEC exports were 2 million barrels per day (bpd) higher last month than in June 2016, despite the extension of OPEC’s 1.8 million bpd production cut.
Lee notes that oil speculators ignored details of OPEC’s agreement, which ordered cuts to begin at the end of 2016 rather than when the accord was announced. That allowed participants to ramp up production during negotiations, which meant the cuts were struck from a higher
As for supply from the United States, Lee says continued pumping by producers will keep prices from skyrocketing back towards $100 a barrel, but their presence is unlikely to prevent an upward move in oil for the remainder of the year.
Following the jump to $60 Lee expects prices to remain flat heading into 2018, as the supply side catches up with demand. Barring major political disruptions from petroleum-producing nations, he expects the price of crude probably will not rise much above $60.