Oil prices climb as Citi raises forecast, OPEC targets 100% compliance
LONDON (Bloomberg) -- Brent oil extended gains to $57/bbl as Citigroup raised its price outlook and OPEC’s top official said the group will push for full compliance with supply cuts.
Futures rose 1.6% in London. Brent will average $55 this quarter, Citigroup said in a note, an increase of $5 from its previous forecast. OPEC is confident members will continue to cut production and reduce global stockpiles, said Secretary-General Mohammad Barkindo. Russia plans to reach its pledged output cuts by the end of April, RIA Novosti reported, citing Russia Energy Minister Alexander Novak.
Oil has held above $50/bbl since OPEC and 11 other nations started trimming supply to ease a global glut. The exporters group implemented about 90% of the pledged cuts last month and Goldman Sachs Group Inc. predicts the market will shift into deficit in the first half, although U.S. crude stockpiles have increased to the highest level in more than three decades.
“There is positive sentiment with the OPEC cuts,” Hans van Cleef, senior energy economist at ABN Amro NV in Amsterdam, said by phone. “The weekly inventory cycle is starting again and that will probably lead to some profit taking."
Brent for April settlement gained $0.86 to $57.04/bbl on the London ICE Futures. The contract gained $0.3 to close at $56.18 on Monday. The global benchmark crude traded at a premium of $2.33 to April WTI.
OPEC Compliance
WTI for March delivery, which expires Tuesday, was $0.93 higher at $54.33/bbl on the New York Mercantile Exchange. Transactions on Monday will be booked Tuesday for settlement purposes because of the U.S. Presidents Day holiday. The more-active April contract climbed $0.92 to $54.70.
"Oil prices are not likely to stray far from their current $53 to $58 range in the near term,” Ed Morse, global head of commodities research at Citigroup, wrote in a note Tuesday. “Record investor net length and bearish inventory data will likely cap prices until more tangible evidence of a tighter market emerges."
The effects of high OPEC compliance with its historic output deal have yet to be realized and should support prices into the second quarter, Citigroup said. Compliance may even increase if Iraq’s March exports match the planned 600,000 bpd month-on-month cut indicated by loading programs, it said.
OPEC data on compliance with cuts so far are “very encouraging,” Barkindo said in a Bloomberg television interview in London. It’s premature to say whether OPEC should extends its supply deal beyond six months, or deepen the cuts, and the pace of the decline in global oil inventories will determine OPEC’s next move, he said.
