Oil Prices and News

Despite brief rally, further downside risk for oil on OPEC output: Citi

LNG market was oversold: Citi
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LNG market was oversold: Citi

Crude oil prices face further downside risk in the first half of 2016, with OPEC holding on to hopes of pumping the competition out of business, a Citigroup analyst said Wednesday.

"We do have a current physical supply-demand surplus. That fits with the price theme…that prices will be lower for longer," Tim Evans, an energy analyst with the bank, told CNBC.

U.S. WTI and Brent crude oil prices were down more 1 percent at about $37 a barrel in Asian trade on Wednesday, after rallying about 3 percent in the prior U.S. and European sessions on hopes that a cooling in winter temperatures would spur demand for heating fuel.

Saudi Arabian riyals
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Oil prices are still at multi-year lows but OPEC production is at levels "well above a year ago", Evans told CNBC's Squawk Box.

For example, in November, OPEC's largest producer, Saudi Arabia, churned out 7 percent more crude oil than a year ago, offsetting a slip in U.S. oil supply growth, he said.

"That extra OPEC oil is what's keeping us in a market surplus," added Evans.


The oil group held back on cutting its 30-million-barrel-a-day production ceiling at its most recent policy meeting, held earlier in December, with kingpin Saudi Arabia standing firm against calls by some other members for an output cut.

OPEC hopes keeping the oil market in surplus will help it maintain market share as lower prices drive higher-cost producers such as U.S. shale oil players out.

But the prolonged slump in oil prices contributed to Saudi Arabia's own record budget deficit of 367 billion riyals ($97.9 billion) in 2015, the country's Council of Economic and Development Affairs said on Monday, prompting the oil-rich country to unveil spending cuts in its 2016 budget, including slashing energy subsidies for Saudis.


OPEC headquarters in Vienna, Austria.
Patti Domm | CNBC

Robert Rapier, chief investment strategist at Investing Daily, told CNBC on Wednesday that he believed OPEC's strategy was a "monumental mistake" that had cost the oil cartel about $500 billion in total, according to estimates.

"By going ahead and re-upping that strategy, it's probably going to cost them another $500 billion next year," said chief investment strategist at Investing Daily, Rober Rapier.

OPEC will hold its next production policy meeting in June.

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