Citi's commodities research team has tempered its outlook for oil prices over the next five years, but it sees room for price shocks if oil supply disruptions increase dramatically or fall off significantly in the coming years.
The bank had projected in February that U.S. crude prices would likely trade mostly in a range of $40 to $65 from 2017 to 2022. It now sees prices trading at $40 to $55 a barrel in the 2018 to 2020 period and then $50 to $60 through 2022.
To be sure, the $60 cap through 2022 implies "smooth sailing" for oil markets during that time period, but Citi sees room for significant price volatility.
Citi notes that the oil market has experienced a high level of disruptions to crude supply in recent years. Prices could spike above $70 a barrel if recently restored production in places such as Nigeria and Libya falls again. But it could also sink below $40 if disruptions elsewhere in the world get resolved, putting more crude oil into the market.
The bank challenges the warnings from the International Energy Agency and major producing nations that declining production rates in oil reservoirs and a lack of new projects will leave the oil market undersupplied. U.S. shale may not be able to meet the outstanding demand, leaving the market vulnerable to price spikes, according to concerned observers.