From a UBS note, in summary. Analysts at the Gloabl Wealth management arm do not expect recent price falls to persist, in light of the oil market’s firming fundamentals:
- We expect global oil demand to hit a record high in August.
- Unlike in other commodities markets, we think global oil demand has never been healthier.
- Chinese demand has hit a record high this year, in spite of recent economic releases.
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Oil inventories are declining, tightening the market.
- While OECD commercial stocks had been rising year-over-year as a result of oil releases from strategic inventories, we see signs that they may contract going forward.
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OPEC+ production is near a two-year low and supply looks set to stay tight.
- OPEC+ has instigated voluntary production cuts since May in order to tighten oil markets. Saudi Arabia then further reduced output, meaning the group’s production and exports are declining. And with Saudi Arabia and Russia extending their production curbs into September, we expect global oil markets to be undersupplied by around 2mbpd in August and by more than 1.5mbpd in September.
- We now expect Brent to hit USD 95/bbl and the US WTI benchmark to rise to USD 91/bbl by end-December, up from the current USD 90/bbl and USD 85/bbl, respectively.
