UBS does not expect Brent crude to move above $100 a barrel on a “sustained basis” as it would lead to higher US crude supply.
Brent, the benchmark for two thirds of the world’s oil, is forecast to trade in the range of $90 to $100 a barrel over the coming months, before ending the year at $95, the Swiss lender said in a research note on Tuesday.
Brent was trading 0.65 per cent lower at $93.73 a barrel at 3.27pm UAE time on Wednesday. West Texas Intermediate, the gauge that tracks US crude, was down 0.61 per cent at $90.64 a barrel.
Oil prices have gained about 30 per cent since falling to a low of $71.84 in June, with the International Energy Agency predicting a tighter-than-anticipated crude market on Opec+ cuts as China, the world’s second-largest economy, introduces efforts to revive growth.
“The price increase has been driven by a tightening of oil fundamentals, with oil demand rising to record levels and lower supply from Saudi Arabia and the other Opec+ member states,” UBS strategists said.
“As a result, visible oil inventories saw a large drop in August, and financial investors have added exposure to crude oil.”
On Monday, Saudi Arabia’s Energy Minister said the Opec+ was not aiming for price control through its output cuts, but less volatility in the market.
The group wants to be “proactive” and “pre-emptive”, Prince Abdulaziz bin Salman said, adding that there was continuing uncertainty regarding Chinese demand, European economic growth, and interest rate actions.
The minister’s comments suggest that Saudi Arabia will only increase crude supplies “when it believes the oil market is sufficiently stable to warrant this move, including when global oil inventories are lower than at present”, UBS said.
Goldman Sachs on Wednesday raised its 12-month Brent forecast to $100 a barrel from $93 and said that the benchmark was “unlikely” to sustainably exceed $105 next year.
“The key reason is that significantly lower Opec+ supply and higher demand more than offset significantly higher US supply,” the US investment bank said.
Goldman Sachs also expects Saudi Arabia to unwind its voluntary production cut of one million barrels per day from the second quarter of 2024.
However, the bank lowered its Opec supply forecast for next year by 900,000 bpd, citing the kingdom’s determination to lower crude inventories and supply cuts.
“We also believe that Brent is unlikely to sustainably drop below $80 a barrel next year because of the strong Opec put. Moreover, western energy policy now has less room left to fight high prices given declines in the SPR [strategic petroleum reserve] and in Iran spare capacity,” Goldman Sachs said.
The US Federal Reserve is widely expected to pause interest rate increases at its meeting on Wednesday, despite persistent inflation in the world’s largest economy.
“The risks for headline inflation to heat up over the next couple of months are rising and that should complicate what the Fed does,” said Edward Moya, senior market analyst at Oanda.
“If core inflation shows it is struggling to continue to drop, the higher-for-longer rate regime will last a lot longer than the market is pricing in.”
After pausing its tightening cycle in June, the Fed increased its policy rate in July for the 11th time since March 2022, as it aims to bring inflation down to its 2 per cent target range.
Fed chairman Jerome Powell warned that the central bank may not be finished with raising interest rates, saying that more proof is needed to slow a cooling economy.
Higher interest rates dampen economic growth, lowering crude demand.
Meanwhile, the Organisation for Economic Co-operation and Development on Tuesday raised its forecast for global gross domestic product growth this year to 3 per cent, from 2.7 per cent.
However, GDP growth rate projection for 2024 was lowered to 2.7 per cent from a previous estimate of 2.9 per cent on weak Chinese economic activity and the impact of higher interest rates.