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A recession could demolish global fuel demand.
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According to Citigroup, if the world enters a recession, oil prices could drop to $65 or lower.
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“For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions,” Citi analysts wrote.
Oil prices may tumble to $65 per barrel by the end of this year and to as low as $45 a barrel by the end of 2023 if the world enters a recession that would crash fuel demand, according to Citigroup.
The bank said in a report on Tuesday, cited by Bloomberg, that the assumptions for this forecast include a global recession, a lack of intervention by OPEC+ or some of its members to boost supply, and a drop in oil investments.
“For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions,” Citi analysts including Ed Morse and Francesco Martoccia wrote in the note. “But oil prices fall in all recessions to roughly the marginal cost,” the bank says, as carried by Bloomberg.
Early on Tuesday, Brent prices were at $111.63 a barrel.
While warning that oil could crumble in case of a recession, Citi’s analysts currently do not expect the U.S. economy to slide into a recession.
Fears of a recession have dragged oil prices down in recent weeks, and they saw their first monthly drop in June for the first time in eight months after the market started fretting about the aggressive interest rate hikes from central banks, including the Fed, as they try to tame the steepest rise in consumer prices in developed economies for four decades.
Citi’s global head of commodity research, Ed Morse, has been bearish on oil for months, and said in June that crude oil is overvalued by a lot and should be in the $70s range.
Other banks are more bullish on oil, especially Goldman Sachs, whose global head of commodities research Jeffrey Currie said last week that the upside risk in crude oil and refined products “is tremendously high right now.” The recent pullback in oil prices could be a buying opportunity because prices are set to go higher from here this summer, according to the Wall Street bank.
“Ultimately, remember, the only way of solving these problems is to increase investment, so we stick to our guns of oil prices moving into the summer up into $140 a barrel range given record-level cracks, and that’s going to be a lot more upside to product prices,” Goldman’s Currie told CNBC last week.
NB: Tsvetana Paraskova wrote this article for Oilprice.com
