UBS Lowers Oil Price Predictions for 2024 to 2026 Period

UBS Lowers Oil Price Forecasts for 2024-2026

In a recent update, analysts at UBS have adjusted their oil price forecasts downwards for the years 2024 to 2026. The decision stems from a combination of weaker global demand and a more stable supply landscape, reflecting shifts in the international market.

New Price Estimates for Brent and Crude Oil

The adjusted forecast indicates that the price for Brent oil in the last quarter of 2024 is now projected to be $75 per barrel, a reduction from the previous estimate of $83. Consequently, this lowers the anticipated average price for 2024 to about $80 per barrel.

Reasons Behind the Adjusted Forecast

The adjustments made by UBS highlight a continuing decline in global demand expectations, particularly due to slower economic growth in major markets like China. This trend signals potential challenges for oil prices as demand growth slows.

For the years 2025 and 2026, the predictions for Brent prices have similarly dropped by $5, bringing their expected value to $75 per barrel.

OPEC+ Production Cuts and Market Balancing

Amid these price adjustments, UBS analysts expect OPEC+ might have to reconsider its plans regarding voluntary production cuts. There seems to be a consensus that any significant alteration in output levels might not occur until at least 2027 or 2028, postponing earlier anticipations of a mid-2025 adjustment.

Market Dynamics and Its Implications

The current state of the oil market appears finely balanced. The combination of weaker demand and steady growth from non-OPEC+ suppliers has lessened the urgency for OPEC+ to increase production levels. This situation reflects a reaction to planned output escalations for October 2024, which have since been delayed.

Analysts from UBS mentioned, "The market is just about balanced next year, assuming no unwind. In the near term, we still see it in deficit in the second half of 2024, and inventory draws should be supportive, especially given the extremely low net positioning on crude." This commentary emphasizes the delicate state of oil supply and demand, with potential volatility in pricing.

Global Demand Forecast Adjustments

Weaker demand growth poses a significant downside risk for oil prices. UBS has downgraded its expectation for global oil demand growth in 2024 by 0.1 million barrels per day (Mb/d), now estimating an increase of around 1 Mb/d. This adjustment is largely attributed to a slowdown in the Chinese economy, a crucial factor in global oil consumption trends.

Further revisions indicate that China's own demand growth forecast is also cut by 0.1 Mb/d, estimating growth of only 0.3 Mb/d in 2024. At the same time, the GDP growth forecast for China has fallen to 4.6%, decreased from an earlier view of 4.9%.

Looking further into 2025, UBS has projected a slightly lower demand growth, predicting an increase of about 1 Mb/d. Various agencies have differing expectations for demand growth, with the International Energy Agency (IEA) and OPEC forecasting between 1.0 Mb/d and 1.7 Mb/d for that year.

Impacts of Non-OPEC+ Supply Increases

Another factor influencing market dynamics is the continued increase in non-OPEC+ supply, now predicted to rise by 0.1 Mb/d for both 2024 and 2025. This upward revision is primarily due to increasing output from the United States, especially in natural gas liquids (NGLs).

US production is expected to grow by 0.6 Mb/d in 2024 and 0.8 Mb/d in 2025, yet analysts warn that crude oil production growth may slow until early 2025. This slowdown results from reduced drilling activity and possible weather-related disruptions.

Moreover, the discipline shown by U.S. shale producers, focusing on capital efficiency rather than aggressive expansion, could further restrain production growth moving forward.

Future Price Projections and Market Risks

As UBS navigates through a changing landscape, they foresee a trading range for oil prices between $65 to $85 per barrel for Brent. Should demand growth surpass projections or if OPEC+ maintains strict adherence to production cuts, prices may approach the higher end of this spectrum.

However, escalating geopolitical tensions, particularly in regions like the Middle East, could create scenarios where Brent prices spike above $90 per barrel. On the contrary, the possibility of a global recession remains the main risk factor. Such a downturn could lead to reduced demand, potentially dropping oil prices to the $60s range.

Finally, if OPEC+ swiftly increases production to safeguard its market presence amid rising non-OPEC+ supplies, prices could dip below the forecasted range established by UBS.

Long-Term Outlook for Oil Demand

Looking longer term, UBS continues to anticipate a moderate demand growth pattern until the late 2020s, after which a significant deceleration is expected. Factors such as enhanced vehicle fuel efficiency and the rising adoption of electric vehicles (EVs) are critical drivers behind this anticipated shift.

Overall, UBS predicts oil demand growth will decrease to about 0.5 Mb/d over the next three to four years, projecting that peak demand may be reached by 2029. By 2030, they estimate that increasing EV penetration could supplant 3.4 Mb/d of global oil consumption, increasing from just 0.9 Mb/d in 2024, which reflects a decisive trend that could exert continuous downward pressure on long-term oil demand.

Frequently Asked Questions

What are the primary factors influencing UBS's new oil price forecast?

The downward revision is largely influenced by weaker global demand, steady supply from non-OPEC+ sources, and economic slowdowns in key markets such as China.

How has the forecast for Brent oil prices changed?

UBS has reduced its forecast for Brent oil prices to $75 per barrel for the fourth quarter of 2024, down from $83.

What trends are affecting U.S. oil production?

U.S. oil production is expected to grow, but the pace may slow due to reduced drilling activity and producers focusing on capital discipline.

What is the projected range for Brent pricing according to UBS?

UBS projects that Brent oil prices will fluctuate between $65 and $85 per barrel in the near future.

How does UBS view long-term oil demand growth?

UBS expects to see a slowdown in oil demand growth over the coming years, with peak demand anticipated by 2029 due to factors like electric vehicle adoption.

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