Investing.com – The major energy agencies have all recently made revisions to likely oil balances for this year and next, but they still point to a tightening of the crude market in the second half of 2024, according to UBS.
These revisions include a bearish update from the International Energy Agency, which noted lower demand growth, a bullish update from the Energy Information Administration, showing higher demand, and a neutral update from the Organization of Petroleum Exporting Countries.
“With the extension of OPEC+ voluntary cuts, the IEA and EIA see market tightness continuing for the remainder of the year, assuming OPEC+ output increases only marginally,” UBS analysts said in a note dated 18 June.
The agencies made mixed revisions to demand growth forecasts this month, with the IEA lowering forecasts, the EIA raising them and OPEC leaving them unchanged.
The IEA’s downward revision was driven by weaker OECD and base effects, while the EIA also noted moderate OECD demand but raised forecasts on increased bunker fuel demand due to disruptions in the Red Sea.
With this in mind, “we are marginally lowering demand growth estimates to 1.1 Mb/d in 2024 and 1.0 Mb/d in 2025,” UBS said.
On the supply side, the agencies kept their non-OPEC+ supply forecasts largely unchanged, with the exception of the EIA growth estimates for 2024, an increase of 0.1 million barrels per day (b/d) compared to better-than-expected US supply in the first half of 24.
Furthermore, despite OPEC+’s announced plan to phase out voluntary cuts possibly as early as October 2024, we continue to model the first OPEC+ barrel returns in the second quarter of 2025, when market balances should allow for a gradual increase.
In the very near term, UBS expects to recover to the mid-to-high $80s, supported by the extension of OPEC+ cuts and the seasonal recovery in demand.
Brent will head to $80/barrel next year as OPEC+ starts to gradually reduce production from the second quarter.
“We expect a negative impact on oil demand from slower GDP growth and higher prices, but continue to expect demand to continue growing until the end of 2020,” UBS said.
However, increasing efficiency and the increasing impact of electric vehicles should see demand growth slow sharply, to around 0.5 Mb/d within three to four years and peak oil production in 2029. Despite this demand slowdown we expect global spare capacity to remain stable at an average level by historical standards, as supply growth also slows.
In the short term, we see the main upside risks arising from more limited supply.
“Extended OPEC+ cuts and possibly a larger drop in Russian production, combined with robust demand, could lift Brent above $90/bbl in the near term in our view. Further escalation in the Middle East and supply disruption could push this closer to $100/bbl,” UBS said.
The bank’s downside scenario assumes a greater negative impact on oil demand due to a global economic slowdown of around 1.0 Mb/d compared to its forecasts.
“Combined with a lower geopolitical risk premium, this could lead to Brent prices falling below our long-term oil price of $75/bbl.”
