UBS Cuts 2024-2026 Oil Price Forecast by Investing.com

Investing.com — Analysts at UBS in a note on Monday revised down their oil price forecasts for 2024-2026, citing weaker global demand and a more stable supply outlook.

The new forecast for oil in the fourth quarter of 2024 was cut to $75 a barrel from $83, lowering the 2024 average price by $4 to $80 a barrel.

This bearish adjustment reflects the bank’s view of a softer global demand environment, compounded by slower economic growth in key markets, particularly China.

For 2025 and 2026, the Brent forecast was also cut by $5 to $75 per barrel.

UBS analysts also suggest that OPEC+ will be forced to delay the reversal of voluntary production cuts, with any significant increases likely to be delayed until 2027 or 2028, compared with earlier expectations of a return to mid-2025.

This shift comes as the market remains finely balanced, with weaker demand and steady growth in non-OPEC+ supply reducing the need for OPEC+ to increase production.

OPEC+ had planned a production increase in October 2024, but this has now been pushed back by two months.

“The market is pretty much balanced next year, assuming it doesn’t go offline. In the short term, we still see it in deficit in 2H24, and stock draws should be supportive, especially given the extremely low net equity position,” the analysts said.

Weaker demand growth has emerged as a key downside risk to oil prices. UBS revised its 2024 global demand growth down by 0.1 million barrels per day (Mb/d) to around 1 Mb/d.

The brokerage attributes this primarily to a slowdown in the Chinese economy, a major driver of global oil consumption.

China’s demand growth forecast was also cut by 0.1 Mb/d, now expected to grow by 0.3 Mb/d in 2024. UBS cut its forecast for Chinese GDP to 4 .6%, from a previous projection of 4.9%.

For 2025, UBS predicts slightly lower demand growth, forecasting growth of around 1 Mb/d, while the International Energy Agency (IEA) and OPEC have a range of expectations for the year, from 1.0 Mb /day at 1.7 Mb/day.

The subdued demand outlook underscores the likelihood of lower prices, barring any major supply disruptions or changes in economic conditions.

Higher-than-expected non-OPEC+ supply further weakens market balances. UBS revised its forecasts for non-OPEC+ supply growth by 0.1 Mb/d for both 2024 and 2025, driven mainly by rising US production.

US liquids production is forecast to grow by 0.6 Mb/d in 2024 and 0.8 Mb/d in 2025, mostly from liquids (NGLs).

However, UBS suggests that U.S. crude oil production growth will slow through the first quarter of 2025 due to reduced drilling activity and potential weather-related impacts.

US shale producers continue to exercise capital discipline, slowing rig deployment and focusing on efficiency, which may limit future production growth.

UBS predicts a range of possible outcomes for oil prices, projecting a likely trading range of $65 to $85 a barrel for Brent.

Prices could rise towards the upper end of this range if demand growth beats expectations or OPEC+ sticks strictly to its production cuts.

An escalation of geopolitical tensions, particularly in the Middle East, could drive Brent prices above $90 a barrel.

Conversely, a global recession poses the main downside risk. In this scenario, reduced demand could push oil prices to $60.

If OPEC+ decides to quickly increase production to defend its market share, especially in the face of increased non-OPEC+ supply, prices could fall below UBS’s forecast range.

UBS continues to forecast modest growth in global demand until the late 2020s, after which it expects a sharp slowdown.

Factors such as increased vehicle fuel efficiency and accelerated adoption of electric vehicles (EVs) are seen as major contributors to this shift.

The brokerage predicts oil demand growth will slow to 0.5 Mb/d over the next three to four years, with demand peaking by 2029.

By 2030, UBS expects the growing penetration of electric vehicles to displace 3.4 Mb/d of oil consumption globally, up from just 0.9 Mb/d in 2024. This trend is likely to puts sustained downward pressure on long-term oil demand.