Analysts from UBS do not anticipate the recent dip in crude oil prices to continue, as they revealed on Thursday. They argue that the current market trends are obscuring a positive outlook for oil demand.
In August, global oil demand expectations reached an all-time high. Concurrently, oil inventories have been decreasing, while OPEC+ production is approaching a two-year low. These factors are all predicted to bolster oil prices in the future.
Despite these indicators, UBS analysts note that some investors remain unconvinced that China’s recent economic stimulus measures—specifically, a 15 basis point reduction to its one-year medium-term lending facility rate and a 10 basis point cut to the short-term 7-day reverse repo rate—will be enough to rejuvenate demand. This is noteworthy as China is the world’s largest importer, second-largest consumer, and seventh-largest producer of oil.
UBS analysts, however, firmly believe that recent price declines will not endure due to strengthening fundamentals in the oil market.
Firstly, UBS cited their anticipation of global oil demand reaching an unprecedented high in August, describing this aspect of the market as “never been healthier,” which sets it apart from other commodity markets.
Secondly, UBS pointed to decreasing oil inventories, which are contributing to a tightening market, as another positive fundamental influencing future oil prices.
Thirdly, UBS highlighted that OPEC+ production is close to a two-year low, indicating that supply constraints are likely to persist.
Considering these three essential fundamentals, UBS foresees the potential for a significant rally in global oil prices. Specifically, the analysts project that Brent could reach $95 a barrel and West Texas Intermediate (WTI) could climb to $91 a barrel by year’s end. These estimates are notably higher than their previous forecasts of approximately $90 a barrel for Brent and $85 a barrel for WTI.
Brent rose 1.47% on Thursday to $84.68.
