UBS Optimistic on Oil Prices

UBS remains optimistic on oil prices, suggesting investors focus on crude oil’s downside price risks due to tight supply.

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 103.45 mbpd between December 2023 and July 2024,” UBS analysts noted.

The bank indicated that non-OPEC+ nations contributed 270,000 bpd to this growth, while OPEC+ added only 50,000 bpd. They also mentioned that Brazil’s output has been weaker than expected, prompting significant downgrades in supply growth estimates for the year.

UBS pointed out that US crude production has slowed; for instance, production in North Dakota’s Bakken shale field declined for four consecutive months leading to July.

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

Even though the Permian Basin remains the primary source of US crude growth, overall production has slowed 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 surrounding OPEC+ supply. Despite these challenges, UBS believes efficiency gains and reduced inflation pressures should 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,” the bank advises, while maintaining a positive price outlook for the coming year.