Bank of America’s latest Oil Monitor report attributes a notable decline in oil prices to changing market dynamics, with geopolitical concerns taking a back seat to supply-side factors.
According to Citi’s analysis, market perception of geopolitical risks in the Middle East has softened, leading to downward pressure on prices, which briefly fell below $82 per barrel. Despite ongoing tensions in the region, the focus has shifted to looser fundamentals.
“Market perception of the impact of geopolitical developments in the Middle East on global oil supply has been subdued, while risk premia in OTM options have also declined, putting intense downward pressure on crude oil prices stand,” the bank wrote.
Citi’s base case assumes a gradual decline in oil prices throughout 2024, with projections of $86 per barrel in the second quarter and $74 per barrel in the third quarter. Despite the recent decline, Citi warns against speculative buying and advises investors to take advantage of any rallies by selling.
“With crude oil prices now trading more than $10 per barrel above their all-time highs, we couldn’t rule out speculative buying, but we still believe the right strategy in this balance between geopolitical risks and dovish fundamentals is to ride out any rally sell,” they explained.
