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Citi: An Oil Supply Squeeze Is Inevitable

Citi: An Oil Supply Squeeze Is Inevitable

Oil

It’s somewhat tradition for oil analysts to produce a flurry of new forecasts after every sharp move in prices, and the latest rally in WTI and Brent is no exception.

In just the last couple of days we’ve seen one analyst predict prices of $80 per barrel, while a panel of several other analysts forecast a price drop if OPEC ends its production cut deal as planned in March 2018.

Now Citi has joined in with a warning: whatever OPEC does, supply will likely get tighter next year.

That’s in stark contrast with the general mood, which is a constant worry that the moment OPEC announces the end of its deal, its members will turn the taps back on and start pumping that oil to levels well above the current quotas. According to Citi’s Ed Morse, the head of the bank’s commodity research, five OPEC members are already pumping at capacity, and a production increase is therefore unlikely.

The members that Morse believes will lead the supply crunch are Iraq, Iran, Nigeria, Venezuela and Libya. All of these, bar Venezuela, have announced plans for a ramp-up of their oil output. All of these, at the same time, face problems in ramping up production, but these problems don’t all come down to insufficient investment, which Morse blames for the pumping-at-capacity scenario.

Venezuela is in disarray and in no condition to expand its oil production. Nigeria and Libya have suffered numerous militant attacks on oil infrastructure, and it’s expected to continue.

Despite these persistent and grave challenges, both Nigeria and Libya have plans to increase production. The Nigerian Petroleum Development Company, for example, recently said it plans to raise its production in the Niger Delta by 320,000 bpd by 2020. Nigeria’s total could grow to 4 million bpd by that year, according to plans announced by oil minister Emmanuel Ibe Kachikwu.

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