Oil Spikes As Citi Calls It “Trade Of The Year” Even As OPEC Oil Basket Price Near Lowest On Record
Tyler Durden: With all eyes on the overnight spike in crude oil prices (up 5% and back over $30, this must be the bottom right?), OPEC remains far from impressed with its basket price hovering at (or near) record low levels at $22.48.
In fact, the collapse of the OPEC basket price in the last 3 weeks has been the fastest drop since October 2008.
However, no matter the chaos occurring various oil instruments (OIL 40% premium to NAV), Citi has decided this is it and dubbed being long oil from here “the trade of the year.”
WTI Crude Oil is spiking (back to critical stop-run high volume nodes).
But OPEC is not buying it.
However, as Bloomberg reports, that has not stopped Citi from calling “long oil” the “trade of the year”.
The outlook for crude isn’t all bad, even as prices head for the worst start to a year since 1991 and there are dire warnings of the world drowning in supply. Forecasters from UBS Group AG to Societe Generale SA are predicting a rebound in the second half and Citigroup says the market just needs to weather a surge of exports from Iran after the removal of sanctions.
“There will be an initial wave of supply from Iran, but once that’s done, it will be flat and I think that’s when you start seeing opportunities for oil to turn,” Ivan Szpakowski, an analyst at Citigroup in Hong Kong, said Friday. “Part of the reason oil is the trade of the year is because it’s going to have such a broad affect, it’s going to take a lot of asset classes up with it.”
Oil should hit a bottom within one to three months, according to Szpakowski. Citigroup is among forecasters predicting a gain in the second half, projecting an average Brent price of $41 a barrel in the third quarter and $52 in the last three months. This compares with a mean of about $47 for the fourth quarter, according to 12 estimates this year compiled by Bloomberg.
A decline in U.S. oil output will help rebalance the global market in the second half of the year, Dominic Schnider, the head of commodities and Asia-Pacific foreign exchange at UBS’s wealth-management unit in Hong Kong, said earlier this month. Schnider correctly predicted Brent would drop near $30 a barrel.
So US production will have to drop? Which means guaranteed bankruptcies and considerably more pain in the short-term. So, yeah, oil may rally at some point but that’s a simple thing to predict IF you assume US oil production drops – the problem is – that hasn’t happened yet (US production up 7 weeks in a row despite the carnage).
But don’t buy just yet.
“Within the next one to three months, that’s when investors should be looking for the opportunity to get in,” Szpakowski said.
Which suggests the “trade of the year” will actually be from a lower low – as opposed to the bullishness that current specs are betting on.