Citi Says Get Ready for an Oil Squeeze

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Those in the oil market fearing a flood of OPEC supply next year will probably be better off preparing for a shortage, according to Citigroup Inc.

Five countries in the group — Libya, Nigeria, Venezuela, Iran and Iraq — may already be pumping at their maximum capacity this year, Ed Morse, the bank’s global head of commodities research, said in an interview. Rather than a surge in output, there’s a risk of a market squeeze emerging as early as 2018, driven by those nations because of weaker investment in exploration and development, he said.

“Fear in the market has been that OPEC production will rise dramatically,” said Morse. However, “there could be a supply gap emerging, which could point to a tighter market,” he said in Singapore on the sidelines of the S&P Global Platts APPEC Conference.

Morse said Iraq’s contract terms weren’t competitive, while major energy companies such as Lukoil PJSC and Royal Dutch Shell Plc had either pulled out of projects or bemoaned the drop in investments. Libya and Nigeria have brought back as much production as they can, he said.

Brent crude in London slipped 0.6 percent to $58.68 a barrel at 5:42 p.m. Singapore time. The benchmark for more than half the world’s oil rose to the highest close in more than two years on Monday. West Texas Intermediate fell 0.5 percent to $51.97 a barrel in New York.

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