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Oil tipped to soar by $10 a barrel in 2017 amid a bumper year for commodities, say Citi analysts

Commodities are forecast to have a bumper year in 2017 with oil prices expected to rally to the mid $60s by the end of December, according to analysts at Citigroup.

Citi analysts had previously projected crude oil prices could shoot up to $70 a barrel in a note published February, as supply and demand levels continued to rebalance.

Although, analysts at the bank suggested increased supplies from producers in the final three months of 2016 had since resulted in "dark clouds hanging over the market". Citi also warned any failure to extend the OPEC agreement would send oil prices "precipitously lower".

"With a continuation of the OPEC/non-OPEC producer deal in the second half of 2017 and the expected associated inventory draw-down, we expect oil prices to move above $60 a barrel by the second half of the year," Citi analysts said in a note published Monday.

One significant risk to an uptick in crude prices could prove to be U.S. shale production, which is tipped to come "roaring back" in 2017, according to the bank. However, Citi analysts pointed to the landmark deal between OPEC and its allies as reason for investors to be optimistic that this could offset the increased levels of U.S. drilling activity over the next six to nine months.

Oil producers would need to extend the historic agreement to curb global oversupply through and until the end of 2017 for oil prices to surge, Citi analysts warned, amid concerns Russia is lagging behind on its pledged production cuts.

OPEC agreed to slashed output by around 1.2 million barrels per day (b/d) from January 1 for six months in order to remove a supply glut. Eleven other non-OPEC countries, including Russia, agreed to limit supply by half as much.

Commodity bulls 'don't need to live on a prayer'

"Do commodities need a bit of a prayer to rebound in 2017? Probably not," Citi analysts said in a note published Monday.

"Commodities stumbled through the first quarter following what was clearly the healthiest year for the sector since the decade began. In retrospect, part of the sell-off toward the end of the last quarter was too much froth in critical subsectors like oil, copper and iron ore. But signs of better performance are increasingly clear, despite major risks," Citi analysts said.

Brent crude traded at around $54.80 a barrel on Tuesday afternoon, down 1 percent, while U.S. crude was around $52.18 a barrel, down 0.87 percent.