UBS Optimistic on Oil Prices as Supply Remains Tight, Expects Prices to Rise Above $80 per Barrel in 2025
UBS, the renowned investment bank, remains optimistic on oil prices, advising investors to focus on the downside price risks as global oil supply continues to remain tight. Despite concerns over slowing economic growth, UBS points out that oil supply growth has been modest, keeping the market in deficit.
According to UBS analysts, global oil production only rose by 320,000 barrels per day (bpd) to 103.45mbpd between December 2023 and July 2024. Non-OPEC+ nations contributed 270,000 bpd to this growth, while OPEC+ added only 50,000 bpd. Furthermore, Brazil's output has been weaker than expected, leading to significant downgrades in supply growth estimates for the year.
UBS highlights that US crude production has also slowed, with production in North Dakota declining for four consecutive months. Additionally, Gulf of Mexico output is expected to drop by 150,000 bpd in September due to recent hurricanes. Despite the Permian Basin remaining the primary source of US crude growth, overall production has slowed due to natural decline post-aggressive drilling in 2023.
Looking ahead, UBS anticipates US crude output to remain subdued in 2025 due to lower oil prices and uncertainty surrounding OPEC+ supply. However, the bank believes that efficiency gains and lower inflation pressures will help sustain some growth.
UBS concludes that with oil inventories likely to continue falling, prices are expected to rise above $80 per barrel. The investment bank advises risk-seeking investors to sell crude oil's downside price risks, maintaining a positive price outlook for the upcoming year.
In conclusion, UBS's analysis suggests that oil prices are poised to increase in the future, providing potential opportunities for investors. Understanding the dynamics of the oil market and keeping an eye on supply constraints can help individuals make informed decisions about their finances and investments.