Citi Hikes Its Outlook For Oil, While Questioning Saudi Arabia's Spare Capacity Claims

In light of the obvious, Citi’s Mark C. Fletcher has hiked his price estimate for oil:

We are raising our Brent forecast for 2011 and 2012 to $105/barrel and $100/barrel respectively from our previous estimate of $90/barrel. In part this reflects a mark to market against a stronger-than-anticipated Q1, and a view that output disruption (or at least the threat of) will support a fear premium for the rest of 2011.

Perhaps the most interesting part is this. Citi is sceptical of stated spare capacity claims:

Assumed spare capacity of 5.2Mbd relies on Saudi Arabia’s claim of 12.5Mbd of capacity and therefore current flexibility of 4.1Mbd. As Figure 6 below shows, Saudi Arabia has not managed to produce more than 10Mbd in recent years and the market cannot be sure of claimed productive capacity until it is tested. Grade quality and the ability of the market to manage quality substitution is also an issue which may cause logistical dislocation and therefore price issues.

Saudi Arabia

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