Investing.com — UBS analysts cut oil price forecasts for the 2024-2026 period in a note Monday, citing weaker global demand and more stable supply prospects.
The new forecast for oil in the fourth quarter of 2024 has been lowered from $83 to $75 per barrel, bringing the average price for 2024 down by $4 to $80 per barrel.
This bearish adjustment reflects the bank’s view of a weaker global demand environment, exacerbated by slower economic growth in key markets, particularly China.
For 2025 and 2026, the Brent forecast has also been lowered by $5 to $75 per barrel.
UBS analysts also suggest that OPEC+ will be forced to delay the unwinding of its voluntary production cuts, with any meaningful increases likely to be delayed until 2027 or 2028, compared to previous expectations of a return in mid-2025.
This shift comes as the market remains well balanced, with weaker demand and steady growth in non-OPEC+ supply reducing the need for OPEC+ to ramp up production.
OPEC+ had planned a production increase in October 2024, but this has now been postponed by two months.
“Next year the market will be close to equilibrium, assuming there is no recovery. In the near term, we still see a shortfall in the second half of 24 and inventory declines should be supportive, especially given the extremely low net positioning on crude,” the analysts said.
Weaker demand growth has emerged as a major downside risk for oil prices. UBS has cut global demand growth for 2024 by 0.1 million barrels per day (Mb/d) to around 1 Mb/d.
The brokerage attributes this primarily to a slowing Chinese economy, a major driver of global oil consumption.
China’s demand growth forecast has also been lowered by 0.1 Mb/d, and is expected to grow by 0.3 Mb/d in 2024. UBS has lowered its China GDP forecast to 4.6%, from a previous projection of 4.9%.
For 2025, UBS forecasts slightly lower demand growth, with an increase of around 1 Mb/d, while the International Energy Agency (IEA) and OPEC present a range of expectations for that year, from 1.0 Mb/d to 1.7 Mb/d d.
The subdued demand outlook underlines the likelihood of softer prices, barring major supply disruptions or shifts in economic conditions.
The higher than expected supply from non-OPEC+ countries is further deteriorating the market balance. UBS has revised upward its non-OPEC+ supply growth forecast for both 2024 and 2025 by 0.1 Mb/d, driven mainly by rising US production.
U.S. liquids production is expected to grow by 0.6 Mb/d in 2024 and 0.8 Mb/d in 2025, largely from liquids (NGLs).
However, UBS suggests that US crude oil production growth will slow until the first quarter of 2025, due to weak drilling activity and possible weather-related impacts.
U.S. shale producers continue to exercise capital discipline, delaying rig deployments and emphasizing efficiency, which could hinder future production growth.
UBS foresees a range of possible outcomes for oil prices, forecasting a likely trading range of $65 to $85 per barrel for Brent.
Prices could rise to the higher end of this range if demand growth exceeds expectations or if OPEC+ sticks strictly to its production cuts.
An escalation in geopolitical tensions, especially in the Middle East, could push Brent prices above $90 per barrel.
Conversely, a global recession is the main downside risk. In this scenario, reduced demand could push oil prices towards $60.
Should OPEC+ decide to rapidly ramp up production to defend its market share, especially in light of non-OPEC+ supply growth, prices could fall below the range forecast by UBS.
UBS continues to forecast modest growth in global demand until the late 2020s, after which it expects a sharp slowdown.
Factors such as increasing the fuel efficiency of vehicles and the accelerated adoption of electric vehicles (EVs) are seen as major contributors to this shift.
The brokerage forecasts that oil demand growth will slow to 0.5 Mb/d over the next three to four years, with peak demand likely to be reached in 2029.
UBS expects that rising EV penetration will replace 3.4 Mb/d of oil consumption globally by 2030, up from just 0.9 Mb/d in 2024. This trend is likely to put continued downward pressure on long-term oil demand .
