Oil prices could sink as low as $20 a barrel later this year: Citi

Crude oil prices likely won’t bottom out until later this year and could sink to as low as US$20 a barrel, said Citigroup analysts.

Prices for the Brent benchmark have rallied roughly 8% in the past month, but Citi warned that inventory buildup and market oversupply conditions continue, offering little real respite for prices.

“Short-term market factors are more bearish, pointing to more price pressure for the next couple of months and beyond,” said Citi analysts in a note to clients. “Not only is the market oversupplied, but the consequent inventory build looks likely to continue toward storage tank tops.”

The analysts forecast that oil prices will bottom out sometime around the beginning of the second quarter.

Their base-case scenario predicts that Brent prices, which on Monday shot up to US$58 a barrel, will fall back to somewhere in the US$40 range. Their forecast calls for Western Texas Intermediate, the pricing standard for North American oil, to fall as low as US$35 a barrel.

But the analysts hedged their forecast by saying that it is hard to call where prices will bottom out exactly given the volatility in recent months.

“It’s impossible to call a bottom point, which could, as a result of oversupply and the economics of storage, fall well below $40 a barrel for WTI, perhaps as low as the $20 range for a while,” they said in their note.

Regardless, they don’t expect prices to see a sustained uptrend until current inventory levels stop rising and there are sustained inventory draws.