The Lone Bear Calling For $65 Oil

Posted by Irina Slav,

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  • The head of commodity analysis at Citigroup believes that there has been a ‘colossal failure’ when it comes to analyzing the fundamentals of today’s oil markets.
  • While plenty of analysts are calling for $100 oil, Citigroup sees oil prices falling to an average of $65 this year.
  • Ed Morse believes the current undersupply is a seasonal phenomenon and sees the global oil balance moving back to a surplus in the second quarter.

Bullishness across commodity markets is overwhelming. Goldman’s Jeffrey Currie summed it up earlier this week by saying “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”

Yet there is the occasional bear – and in oil, one bear is arguing that oil will fall in just a few months.

Citi’s head of commodity analysis Ed Morse is a rare contrarian voice in a sea of commodity analysts predicting oil at $100. For a while now, Morse has argued that instead of rising much further, oil will actually fall this year, potentially averaging $65 per barrel by the end of the year.

“I think there’s been a colossal failure of the analytical community to look at what’s happening on the ground, to look at projects that have been reaching final investment decisions, to look at where the efficiency of capital is, to be blindsided by a prejudice, which says not enough capital is being spent, and decline rates are going up,” Morse told Barron’s in a recent interview.

According to Morse’s team’s projections for this year, global oil supply should increase by 5.5 million bpd, and this is excluding Iran, which seems to be nearing a chance to return to global oil markets if the ongoing talks about its nuclear program with the United States end with an agreement. As Bloomberg’s Xavier Blas noted in a recent column, Iran may already be exporting oil illicitly, and the lifting of U.S. sanctions may not change the amounts much, but the very news will be bearish for oil prices…read more.