Citi Ups 2017 Oil Forecast To $65

With WTI crude oil prices knocking on the door of $50/bbl for the first time since October of 2015, Citi analyst Seth Kleinman has become more bullish on the outlook for oil. According to Kleinman, a combination of crude oil inventory drawdowns, supply outages and worker strikes have quickened the pace of the oil market re-balancing so far this year.

“These things aren’t going to go away, so I think now that you’re really starting to see U.S. [production] declines on top of all these other economic declines and outages, I think you’ve got a pretty firm base for a rally,” Kleinman told CNBC on Wednesday morning.

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Citi has upped its 2017 price forecast for Brent oil to $65/bbl, but Kleinman warned investors it could be a bumpy ride.

“As long as supply continues to decline, which it is and it’s going to take time, it means we can grind higher but it’s not going to be linear,” Kleinman concluded.

He argued that a slow grind higher is the best oil investors can hope for, as a large spike in oil prices would likely be met by a production spike from U.S. shale producers that would drive prices back down.

So far this year, the United States Oil Fund LP (ETF) USO is up 8.7 percent.

Disclosure: The author holds no position in the stocks mentioned.