Citigroup: 2015 Fallout From Crude Oil Collapse

According to a recent report, Citigroup sees the volatility and fallout surrounding crude oil prices continuing throughout 2015. Citi analysts outlined what they believe will be key developments to watch out for in the upcoming year.

Driving Factors Still Going Strong

Analysts point to three main reasons for the collapse in crude oil prices: the U.S. shale revolution ramped up oil production like never before, Saudi Arabia cut official selling prices (OSPs) to Asia, and the worldwide economy weakened. While none of these factors will continue indefinitely, Citi sees all of them continuing to weigh on oil prices in the immediate future.

Fuel Efficiency Playing A Role

In the report, Citi analyst suggest that the falling global demand for oil is not entirely about economic weakness. “Demand weakness is partly a reflection of weaker [emerging market] macro growth, but also a direct result of higher fuel efficiencies and fuel substitution, with three significant implications: it should quiet concerns regarding the global economy, give more optimism to the GDP impact of lower oil prices, but should mitigate expectations for a big oil demand rebound from lower prices.”

Supply, Not Demand

Analysts believe that this collapse in oil prices was solely due to oversupply. In fact, Citi believes that stronger crude oil demand in 2014 would only have temporarily delayed the inevitable.

2015 Projections

According to the report, oil oversupply conditions will only get worse in the first half of 2015. The report lists three reasons for a bump in near-term oversupply: an increase of over 200,000 barrels per day of Canadian sour crude oil expected to be delivered to the U.S. Gulf Coast, efforts on the part of Saudi Arabia to regain lost U.S. market share and falling refinery margins.

Overall, Citi projects the price of Brent crude oil to average $63 per barrel in 2015.