UBS Sees Some Relief for Oil Before Demand Woes Return in 2020

NEW YORK (Capital Markets in AfricaA) – Oil prices will rise over the next few months as global inventories shrink, before declining in 2020 as trade-war induced demand woes return to haunt the market, according to UBS AG.

The Swiss bank sees Brent crude climbing to $65 a barrel in three months, around 8% higher than current levels, it said in a note by analysts including Giovanni Staunovo. However, the global benchmark will drop to $63 in six months and $60 in 12 months, UBS said.

While seasonal supply-demand dynamics should support crude for the rest of this year, the U.S.-China trade dispute will re-emerge as the main price driver in 2020, the lender said. It cut its global gross domestic product growth forecast for next year to 3.4% from 3.6% and also lowered its estimate for oil consumption expansion to 1 million barrels a day from 1.2 million.

“If trade tensions escalate, oil demand growth could soften even more next year and pose downside risks to our new forecasts,” the analysts wrote. “The three fragile oil-export countries (Venezuela, Iran and Libya) still may influence the outcome for 2020” in either a bullish or bearish way, they said.

UBS also cut its West Texas Intermediate projections by $5 a barrel to $58 in six months and $55 in 12 months. WTI is currently trading near $56 a barrel.

On the supply side, the lender sees the Organization for Petroleum Exporting Countries and its allies likely extending the production-cut agreement that runs through the end of the first quarter. But a small increase in non-OPEC output and the drop in demand growth mean the market will be oversupplied by around 500,000 barrels a day in 2020, it said.

Source: Bloomberg Business News