Unlike some investment banks that were quick to revise down their forecast for crude oil benchmarks next year, Swiss UBS is rather bullish: its head of asset allocation for APAC, Adrian Zuercher, says Brent crude could rebound to US$70 and even US$80 a barrel over the next 12 months.
Speaking to CNBC, Zuercher noted that while supply of crude oil was still abundant, this could soon change as the OPEC+ production cuts enter into effect. While the recent oil price drop suggests many don’t believe these cuts will be as effective as the first ones in 2017, Zuercher noted a report by the Wall Street Journal that Saudi Arabia plans to cut more than initially expected, and the fact that Venezuela’s production would likely continue downwards as would Iran’s under the weight of U.S. sanctions.
The current slump in oil prices, the UBS analyst says, was a result of the double blow of Iran sanction waivers and record-high production from, among others, Saudi Arabia prior to the latest cut deal. Initially, Saudi Arabia said it would take on a 500,000-bpd cut from the total OPEC-wide 800,000 bpd agreed at the Vienna meeting. This is a certainly large cut but it is based on cutting from record-high production rates of over 11 million bpd. Related: $50 Oil Won’t Kill U.S. Shale
Demand, according to Zuercher is also strong, especially in China. Indeed, China’s oil imports in October hit an all-time high, but that was at least party due to teapot refiners seeking to use up their import quotas before they expire at the end of the year.
UBS is not the only bullish bank: Goldman Sachs also expects oil prices to recoup some of the losses they suffered in the last couple of months next year. JP Morgan, however, last month cut its Brent crude forecast from US$83.50 a barrel in 2019 to US$73. Citigroup, for its part, is in the middle: the investment bank does not expect huge changes in oil prices next year as rising production in the U.S. would offset the OPEC+ cuts. Citi expects Brent to average US$60 a barrel.
By Irina Slav for Oilprice.com
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