With Brent crude oil climbing above the $85 level this week, UBS analysts told investors in a note that they feel the rally "can go further."
The firm said in a note this week that "given the constructive forces" they see for crude in the coming months, they remain positive on oil and continue to expect prices to rise towards $90/bbl by the end of 2023. Here's why:
Prospects Remain Solid: The firm said that on the demand side, prospects for oil remain solid as demand has been robust at above 102 million barrels per day in July. UBS believes it is set to breach 103M barrels per day in August for the first time, driven mostly by China and India, as well as Brazil and the Middle East. "Together, we expect these to offset the underwhelming demand from advanced economies," the investment bank wrote.
Supply Will Remain Tight: UBS also feels supply will remain tight. The analysts noted that the OPEC+ crude output hit a one-year low in June, while they believe production in July was also likely considerably lower due to Saudi Arabia's extra voluntary cuts and temporary production outages in Mexico, Kazakhstan, and Nigeria.
Oil Markets to Stay in Deficit, Boosting Prices: As a result of the firm's view of the supply/demand picture, they believe there will likely be a market deficit of around 2mbpd in July and August versus around 0.7mbpd in June. "We also previously estimated that if the Saudis extended their 1mbpd oil cuts, as has happened, September could see another deficit of more than 1.5mbpd," said UBS.
The firm concluded that risk-taking investors are "recommended to add long exposure via first-generation indexes or longer-dated Brent contracts, or to sell Brent's downside price risks."