Crude Oil Prices Will Tumble to $65 Per Barrel By December - Citigroup Analysts

Citigroup strategists are predicting that crude oil prices will drop sharply by the end of the year, irrespective of whether there is a recession or not.

The analysts at the investment bank are the only ones in the pack that think oil is headed for a fall within months. In the past several weeks, analysts have been bullish on oil, some insanely so. Interestingly, PMorgan said last week crude could shoot up to an astronomical $380 per barrel if Russian supply remains disrupted in the medium term.

Surprise For Markets

Oil prices have been hovering in the range of $100 per barrel in the recent days. Citi strategist Francesco Martoccia said on Friday oil prices could fall to $65 a barrel by December, surprising the markets.

crude oil storage tanks
crude oil storage tanks reuters

Close on the heels of the prediction, WTI crude prices tumbled below $100 on the back of investor fears that a hike in interest-rate hikes around the world would stymie economic growth.

According to Yahoo Finance, Martoccia and his team at Citi believe the price of global benchmark Brent crude will fall to at least $85 a barrel by December this year.

The Citi experts' expectations are pegged on hopes that there will not be a heavy disruption in Russian crude supplies.

"We actually don't see a supply crunch in the making," Martoccia said.

Warning on 'Stratospheric' Rise Last Week

JP Morgan had warned last week that "stratospheric" rise of oil price will happen in the wake of the US and European punishment for Russia over the Ukraine war.

Citibank. Twitter/Citibank

"The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports ... It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia's side," the investment bank's analysts wrote, adding that in the worst case scenario oil prices could hit $380 per barrel.

The projection came days after the G-7 leaders pledged to enforce a price cap on Russian oil. This was meant to reduce the Russian oil revenue, which funds the war against Ukraine.

However, according to some analysts such a price cap is doomed to fail as Russia, flush with cash, can afford to reduce output drastically.

However, this will lead to a supply crunch around the world that cannot be easily addressed by other major oil producers. According to some projections, Russia can afford to slash production by about 5 million barrels per day.

Major russian gas pipelines to Europe
Major russian gas pipelines to Europe Wikimedia Commons

Medvedev's Threat

The JPMorgan analysts predict that the world cannot deal with such an output drop. According to them, even a 3 million-barrel a day output reduction will result in the benchmark London crude rising to $190. The projections show that a reduction of 5 million barrels a day will result in crude prices hitting $380 per barrel.

Two days after the JPMorgan prediction, former Russian president Dmitry Medvedev said a supply chain squeeze by Russia would cause oil prices to rise to $400 per barrel.

Echoing concerns around the world's commodity markets, Russia's former president Dmitry Medvedev has said the move to enforce a price cap on Russian crude will drive oil price upwards of $400 per barrel.

According to Medvedev, oil prices could rise to between $300 and $400 a barrel if price cap on Russian crude is enforced, Reuters reported.