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Citi Thinks The Low Is In For Crude Oil

  • Oil prices surged last week at least partly thanks to headlines concerning a possible deal between Russia, Saudi Arabia and other OPEC and non-OPEC countries. Citi expects this deal to fail to materialize just as the last few have failed.
  • The rebound at the back of the oil curve (calendar 2018 and beyond) was robust and overdue. Something (likely producer hedging) collapsed the back of the curve in the first half of January. This weight appears to have been lifted, with Dec 2018 Brent rebounding from $42.50 to $47.50/bbl. So long as the back continues to rally towards a more rational level (over $50/bbl) it means that timespreads can widen to accommodate inventory builds that look set to continue, but the prompt contract does not need to fall.
  • Hence even if fundamentals continue to look bearish, Citi thinks it more likely than not that the lows are in for crude oil.