Oil

Oil: Citi identifies factors dragging oil: -US Shale Revolution crushed skeptics as production soared, resulting in the near complete rejection of light sweet crude from West Africa by mid- 2014, pushing Atlantic Basin light sweet crude into surplus and Brent into contango. -Saudi Arabia cutting Asian OSPs shut down the only available evacuation route for this surplus and Brent prices went into freefall. Saudi marketing dilemmas were critical with lost market edge in the US and being frozen out of an incremental share in China, given the country’s lower growth, rapidly declining energy intensity, and pre-export finance deals with Moscow following sanctions -The third factor, a weak global economy with a resulting weak demand backdrop, is real but Citi thinks far too much has been made of this factor in the wider press. Demand weakness is partly a reflection of weaker EM macro growth, but also a direct result of higher fuel efficiencies and fuel substitution. In short, Citi thinks the drop is supply driven, and even if demand had been stronger, it’s just a delay of the inevitable. Citi sees Brent at $63/bbl in 2015. Thinks most worrisome are unintended consequences and further geopolitical strain, esp in Russia and Iran, if they perceive that prices are being manipulated against them.