Given that the oil markets (CL1:COM) and (CO1:COM) have fallen by around $15 compared to the last three months and the market is unsure whether OPEC+ would extend or even implement the established cuts, growth of the mature industrial economy could deteriorate in 2024, said Max Layton, Citi global head of raw materials research.
“We think there is a relatively small risk premium in the market for Middle East supply risks,” Layton said during an interview with CNBC. “Overall, the market is priced correctly for the first quarter.”
Citi's oil price targets for the first, second, third and fourth quarters are $76, $69, $70 and $68 respectively for WTI (CL1:COM), and $80, $73, $74 and $72 respectively for Ice Brent ( CO1:COM). ).
Additionally, Layton said he is bullish on precious metals and neutral on bearish energy.
“There is obviously a non-zero material risk that the situation in the Middle East worsens and (causes) a direct impact on supply or generates a higher risk premium,” he said, “but I think it is difficult to say whether the market” “You pay that against what is a fairly sizeable surplus in the second quarter, absent OPEC+ advancing those cuts during the second quarter.”
There is a surplus of more than one million barrels for the second quarter that exceeds the market along with excess capacity. But the possibility of the cuts being spread throughout the year is “a really plausible scenario,” he said.
“It is within the OPEC+ charts to balance this market next year and protect these types of prices: around $70-$75 for WTI and Brent,” he said. “If you wait, you give time for supply disruptions to occur. The whole time you're waiting you're allowing your out-of-the-money supply disruption auction to come into the money. That would allow them to return to that weakness of the offer.”