UBS on Thursday said it expects Brent crude prices to move back up towards the $90-$100 per barrel range despite recent weakness, citing tight supplies and rising global demand.
Global consumption of crude remains well supported despite the weaker official forecast from the U.S. and key oil producers have remained disciplined on production, keeping supply tight, UBS analysts wrote in a note.
Brent crude futures were trading around $80 a barrel by 0730 GMT on Thursday, hovering near more than three-month lows as geopolitical risk ebbed and demand concerns persist. [O/R] The risk of disruption to oil production arising from the Israel-Hamas war has not gone away, UBS said, adding “our base case is that the conflict will not escalate. However, events in the region remain fluid.”
“The clearest threat is to Iranian output. Should Iranian crude exports fall by around 300,000–500,000 barrels per day, this could further constrain the already undersupplied market, potentially pushing Brent prices up to $100–110 per barrel,” UBS said.
Meanwhile, top oil exporters Saudi Arabia and Russia confirmed on Sunday they would continue with their additional voluntary oil output cuts until the end of the year.
UBS said it expects these voluntary supply cuts to be extended into the first quarter of next year, given seasonally weaker oil demand at the start of every year and ongoing economic growth concerns.
“We continue to recommend risk-taking investors add long exposure via longer-dated Brent contracts, which are trading at a discount to spot prices, or to sell Brent’s downside price risks,” the bank said.