Investing.com – UBS remains bullish on oil prices, suggesting in a note Thursday that investors should focus on downside price risks as supply remains tight.
According to the company’s latest note, oil supply growth has been modest, leaving the market in shortages despite concerns about slowing economic growth.
“Global oil production rose by just 320,000 barrels per day (bpd), or 0.3%, to 103.45 mbpd between December 2023 and July 2024,” UBS analysts said.
The bank said non-OPEC+ countries contributed 270,000 barrels per day to this growth, while OPEC+ contributed only 50,000 barrels per day to this growth. Brazilian production is also weaker than expected and supply growth estimates for the year have been significantly revised downwards, she added.
UBS also notes that U.S. crude oil production has slowed. “Production in North Dakota, home to the Bakken shale field, declined for four consecutive months through July,” the note said.
Meanwhile, production in the Gulf of Mexico is also expected to decline by 150,000 barrels per day in September due to recent hurricanes.
While the Permian Basin remains the main source of U.S. crude oil growth, overall production has slowed, reflecting a natural decline after aggressive drilling in 2023, UBS says.
Looking ahead, the bank expects U.S. crude oil production to remain muted in 2025 due to lower oil prices and OPEC+ supply uncertainty.
Despite these challenges, the investment bank believes that efficiency gains and lower inflation pressures should provide some support to growth.
UBS concludes that with oil inventories likely to continue falling, prices are expected to rise above $80 per barrel. “We continue to recommend risk-seeking investors sell the downside price risks of crude,” UBS advises, with the price outlook for the year ahead remaining positive.
