Fakoyejo OlalekanAmerican banks are divided over the future price of crude oil, as Citigroup and Goldman Sachs issue opposing forecast regarding the commodity that has skyrocketed to $102.9 per barrel globally.
Since trading reopened after the global lockdown induced by COVID-19, crude oil price has risen by 414.7% since the commodity fell to $19.99 per barrel on April 26, 2020, the lowest level in two years.
In a company forecast regarding crude oil price, Citigroup warned investors that the cost will drop to as low as $45 per barrel at the end of next year, but will close this year around $65.
The current level has seen western countries subsidising the cost of fuel, and compelled Nigeria to postpone its planned subsidy removal for the product which cost the African nation N1.24 trillion monthly.
Citigroup based its forecast on impending global recession, which is being driven by soaring inflation globally due to the rising price of oil. The firm also blamed failure to boost oil supply to curb the price hike by the Organization of Petroleum Exporting Countries and its allies (OPEC+), including declining investments in the oil industry.
It said oil price often crash to global recession, as demand for the product will drop, resulting to traders reducing cost to sell the commodity. This will send the product price back to pre-COVID-19 era.
According to Francesco Martoccia and Ed Morse, analyst at Citigroup, they were quoted by Bloomberg as saying, “For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions. But oil prices fall in all recessions to roughly the marginal cost.”
While the company project a rather low price for crude oil going into H2 2022 and next year, Citigroup’s global head of commodity research, Ed Morse, said the product should be selling around $70 currently, but it is overvalued, hence, the negative forecast that the bullish run will end in late 2022 and 2023.
Citigroup’s prediction is far from that of Goldman Sachs, considering the latter projected that the current price level is not the ceiling for crude oil, expecting further upward movement.
Goldman Sachs’ Global Head of Commodities Research, Jeffrey Currie, said investors interested in oil should invest now, as the price will skyrocket to $140 in the second half.
Currie acknowledged that the price is currently tremendously high, but that will not be the highest, “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.’’
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