As crude drops below $90 a barrel, investors should bet on a steep drop in the oil price, Citi strategist says
A busy hurricane season could have a positive impact on oil prices. Photo by ANGELOS TZORTZINIS/AFP via Getty Images
Expect a sharp drop in oil prices as demand for gasoline falls and supply increases, a Citi strategist said.
"The market is no longer expecting shortages," Ed Morse told CNBC.
However, a busy hurricane season poses a major risk to markets and could push prices higher again.
Crude oil fell below $90 a barrel this week for the first time since Russia invaded Ukraine - and a top strategist warned bigger price falls are on the horizon.
The fall in oil prices argues for weaker US gasoline demand as recession fears mount, coupled with a major US inventory build-up that has boosted supply.
Speaking to CNBC on Thursday, Ed Morse, Citi's global head of commodity research, said, "It means the market is no longer expecting tightness, but easing. Supply only plays against demand,” he said.
More supply and less demand for oil usually means falling prices. "This is something that has to worry businesses while it's very comforting for consumers," Morse said.
Crude oil prices have fallen broadly over the past month as aggressive monetary policy from the US Federal Reserve has caused investors to worry about the possibility of the US economy slipping into recession. Such concerns have dampened US consumer demand for gasoline at a time when US inventories and OPEC leaders were reporting an increase on the supply side.
However, Morse says there could be shocks as the US braces for a busy hurricane season.
"That's the only major risk facing markets," he said, especially as the world becomes increasingly dependent on US oil production as Western sanctions halt Russian supplies and Russia cuts energy exports in retaliation for the aggression used against them their war with Ukraine.
Gas prices, in turn, could rebound and oil prices could quickly surge above $120 a barrel, he added.
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