Investment bank Citigroup has advised clients to anticipate a reversal in oil prices following the recent outbreak of war between Israel and Hamas. Citi predicts that this conflict will contribute to immediate price increases in the crude markets. In fact, both Brent and West Texas Intermediate have already experienced a surge of $3.20-$3.40 per barrel in Monday morning’s active trading on CME and ICE.
According to Citi’s commodities team, the positioning of managed money in the oil market has significantly eased, with the long skew expected to diminish from the previous ratio of thirteen-to-one or higher to about seven-to-one or eight-to-one. This shift reflects substantial liquidation since mid-September. However, Citi believes that the trend of reduced length will reverse in the coming days and weeks.
In addition, Citigroup has informed clients that a U.S.-brokered deal aiming to increase Saudi oil supply this winter in exchange for the Kingdom’s recognition of Israel is unlikely to proceed. Furthermore, talks about relaxing sanctions against Iran, potentially leading to increased production and exports from the country, are also believed to be terminated.
Instead, the focus will now be on concerns about possible retaliation by Israel against Iran. Since Iran is considered one of Hamas’s financiers, there is a lingering fear of an eventual attack. Citi expects this fear to persist well into 2024.
