Citigroup's global commodities team on Wednesday said crude oil has missed out on what has been a "spectacular year for some commodities" and has been mostly range bound with volatility at about 10 year lows.

The investment bank said it sees nominal upside risk for crude oil in the third quarter and continues to point to Brent crude prices of $55-$60/bbl in 2025.

Citi retained its 0-3 month forecast of an $82/bbl price for Brent, saying it's likely the benchmark will hold close to current values.

The bank forecast global crude inventories will fall in July and August, amid a typical summer increase in demand, brisk refinery runs and continuing geopolitical and weather risks.

Citi said it believes copper is the hottest commodity to hold this year and next and suggested investors go long in the metal, while shorting crude oil.

The bank has been consistent in its suggestion that 2025 will be a down year for crude. Analysts believe that Brent prices will fall by about 20% below 2025 forward numbers, which settled mixed on Tuesday from $76.30/bbl in December to $79.72/bbl in January.

Citi said a bearish stance is warranted even if OPEC+ extends all production cut through 2025. If the cartel follows through on its recent promise to unwind some of the 2.5 million b/d in reduction, the bank predicted a "very large surplus" will follow.

Citi's pricing deck is lower than all of its peers. The bank has Brent slipping to $74/bbl in the fourth quarter and put the initial first-quarter 2025 price at $65/bbl. It said it expects Brent to slip to $60/bbl in Q2 and Q3, before ending next year at $55/bbl. Price projections for WTI are $4/bbl lower.

The bank's base case has OPEC+ maintaining its current production and calculates forward days of demand cover dropping from 62 to 60 when winter arrives. It said that should rise to 65 days next year.

If OPEC+ were to fully unwind voluntary cuts as planned, total commercial oil inventories could rise close to an unwieldy 69 days in 2025, the bank added.

OPEC+ spare capacity is now estimated to be 6 million bbl.

Over the near term, historically light financial positioning in crude, RBOB and ULSD could create a fertile environment for rallies based on geopolitics or weather disturbances, the analysts said.

Citi's regular quarterly commentary includes an "extremely bullish" take on China's energy transition and the analysts said that is bullish for copper and bearish for oil demand growth.

The transition provides the country with a much-needed growth driver as well as energy security in addition to reducing Chinese environmental issues over the longer period, the analysis said.

Citi cited Chinese investment that represents three times what the U.S. has spent on shale production. The bank's analysts also forecast "mass adoption" of new energy vehicles, predicting they will replace many conventional fuel-powered vehicles over the next one to two years.

The report also mentions revolutionary battery technologies that may make "extended range electric vehicles," the next big trend in China and elsewhere Citi also took issue with the so-called "supply gap thesis" that has aggregate upstream capital expenditures well below pre-2014 oil price crash levels, leading to tighter supply.

Oil production has grown robustly, the bank said, demonstrating significant capital efficiency gains. Decline rates for existing reserves have also been well-managed, the bank said.

The bank is modestly bullish on natural gas, recommending that investors buy U.S. Henry Hub gas in anticipation of higher prices. Citi said it believes Henry Hub prices could push above $5/MMBtu next year on the back of restricted capital expenditures and brisk exports as well as a surge in domestic demand.

The bank is somewhat sanguine about global economic growth. Its economic team now sees 2.5% growth this year, which is about 0.5% below trend.

Specific to the U.S. is a forecast for a slowdown that might open the door for three Federal Reserve rate cuts.

Bank analysts have reiterated a very bearish oil view should November's U.S. elections lead to a Republican "red wave" victory.

In that scenario, the banks said renewed trade tensions would impact demand, hitting diesel consumption hard. A "warmer" U.S.-Saudi relationship might push OPEC to bring more oil back to the market sooner.

Citi's report also predicted refinery margins will be compressed through the second half of this year and into next year as capacity increases.

Overall global gasoline demand is expected to face headwinds from EV penetration but Citi said it believes gasoline will be a stronger part of the barrel than diesel.

Citi also said it is bearish on corn and soybeans, projecting that those two commodities could drop by 10-20% below forward numbers.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

   --Reporting by Tom Kloza,; Editing by Jeff Barber, 

(END) Dow Jones Newswires

06-12-24 1159ET