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Swiss UBS strategists predict that oil will rebound to $125 in the coming months as fundamentals point to higher prices, spare capacity is ebbing and inventories are at multi-year lows.
In a Thursday research note, UBS responded to Saudi comments to the effect that OPEC+ could cut production at any time, citing a “disconnect” between fundamentals and oil futures prices.
The bank also noted coming disruption to oil markets when a European ban on Russian seaborne oil imports goes into effect in December.
"The European Union intends to cut its dependence on Russian waterborne crude imports by December 5 and refined products by February 5. This will likely cause some disruptions as Russian oil imports to the EU amounted to 2.8m bpd in July,” the research note said, as reported by The National News.
UBS strategists said an end of releases from strategic petroleum reserves in OECD countries would end up taking more than 1 million barrels per day off the market beginning in November.
This would lead to “tighter markets at the end of the year”, UBS wrote.
The comments regarding OPEC+’s potential to cut oil production came from the Saudi Energy MInister Prince Abdulaziz bin Salman earlier this week. Since then, oil prices have risen back above $100 per barrel.
Prior to the prince’s comments, oil prices were falling as the market weighed the impact of the potential return of Iranian barrels should a revival of the 2015 nuclear deal be agreed upon. The market has also been factoring in slowing economic growth as a bearish weight.
On Wednesday, reports emerged that Iran had received responses from the United States regarding Tehran’s concerns related to the final draft of the nuclear deal.
In the meantime, Reuters cites Oanda analyst Crain Erlam as saying that Saudi Energy Minister’s comments may make “the chance of a move back below $90 in the near-term hard to come by unless a nuclear deal is agreed upon and OPEC+’s appetite for cuts put to the test.”
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com