UBS Predicts Oil Prices to Soar Above $80 as Supply Remains Tight
In a recent note, UBS expressed optimism regarding oil prices, highlighting the downside price risks that investors should focus on due to the tight supply in the market. Despite concerns over slowing economic growth, the firm pointed out that oil supply growth has been modest, leading to a market deficit.
According to UBS analysts, global oil production only increased by 320,000 barrels per day, or 0.3%, to 103.45mbpd between December 2023 and July 2024. Non-OPEC+ nations contributed 270,000 bpd to this growth, while OPEC+ added just 50,000 bpd. Additionally, Brazil’s output has been weaker than expected, and supply growth estimates for the year have been significantly downgraded.
UBS also highlighted the slowdown in US crude production, with production in North Dakota declining for four consecutive months. The Gulf of Mexico output is expected to drop by 150,000 bpd in September due to recent hurricanes. Despite the Permian Basin remaining a primary source of US crude growth, overall production has slowed after aggressive drilling in 2023.
Looking ahead, UBS anticipates that US crude output will remain subdued in 2025 due to lower oil prices and uncertainty surrounding OPEC+ supply. However, the investment bank believes that efficiency gains and lower inflation pressures will support some growth.
UBS concludes that with oil inventories expected to continue falling, prices are likely to rise above $80 per barrel. The bank advises risk-seeking investors to sell crude oil’s downside price risks, maintaining a positive price outlook for the upcoming year.
Analysis:
In summary, UBS’s optimistic outlook on oil prices suggests that investors should pay attention to the tight supply in the market. With modest oil supply growth and concerns over slowing economic growth, the firm believes that prices will rise above $80 per barrel. This could present an opportunity for risk-seeking investors to capitalize on potential price increases in the future.