UBS Optimistic on Oil Prices

UBS remains optimistic on oil prices, suggesting investors should focus on crude oil's downside price risks as supply remains tight.

According to the firm's latest note, oil supply growth has been modest, keeping the market in deficit despite concerns over slowing economic growth.

"Global oil production rose by just 320,000 barrels per day (bpd), or 0.3%, to 103.45mbpd between December 2023 and July 2024," UBS analysts said.

The bank noted that non-OPEC+ nations contributed 270,000 bpd to this growth, while OPEC+ added only 50,000 bpd. Brazil's output has also been weaker than expected, and supply growth estimates for the year have been downgraded significantly.

UBS also mentioned that US crude production has slowed. "Production in North Dakota, home to the Bakken shale field, declined for four straight months to July," the note states.

Meanwhile, Gulf of Mexico output is expected to drop by 150,000 bpd in September due to recent hurricanes.

Although the Permian Basin remains the primary source of US crude growth, overall production has slowed, reflecting a natural decline after aggressive drilling in 2023, according to UBS.

Looking ahead, the bank expects US crude output to remain subdued in 2025 due to lower oil prices and uncertainty around OPEC+ supply.

Despite these challenges, UBS believes efficiency gains and lower inflation pressures will help sustain some growth.

UBS concludes that with oil inventories likely to continue falling, Brent prices are expected to rise above $80 per barrel. "We continue to recommend risk-seeking investors to sell crude oil's downside price risks," UBS advises, maintaining a positive price outlook for the coming year.