Saudi Arabia has increased the amount of crude it is pushing into an already oversupplied world market at a time when a surge in ETF investing could exaggerate any drop in oil prices, according to Citigroup analysts.
In a new report, the Citigroup energy analysts say inflows into crude-linked exchange traded funds have created "significant froth" in the oil market and could exacerbate a downside correction in the second quarter, given the market's bearish fundamentals.
While some analysts say a low may have been reached, the industry is braced for another leg down in oil prices this quarter that could result in a bottoming for the market. Citigroup previously said the bottom could be as low as the $20s per barrel and that U.S. shale producers would be seriously impacted if the prices stayed at $50 or lower. West Texas Intermediate crude futures were trading at $52.35 per barrel.
Factors cited for bearish fundamentals include a jump in Saudi production to 10.3 million barrels a day and daily exports reaching 7.5 million barrels in March, a time when demand is typically softer. The output increase, between 700,000 and 1 million barrels a day since mid-February, could be very bearish particularly if the increased exports make their way into the already oversupplied U.S. market.