UBS Oil Price Forecast as of 2-13-2023

[dan_s]

From UBS Investment Research Team February 13, 2023 (the 4th of the Wall Street Gang to forecast a spike of WTI to over $100 by Q4 2023)

Crude oil prices have remained volatile this year, with markets torn between
fears of an extended Fed rate-hiking cycle due to a tight US labor market
versus optimism over a recovery in oil demand as China’s economy reopens.
As a result, Brent crude is trading at a similar level to the start of the year,
around USD 85/bbl.

But we believe that the tightening of the oil market this year will eventually
put prices on an upward trajectory. Russia’s announcement last Friday of an
output cut in March is a reminder of these dynamics.

Russian output set to fall. Although Russia managed to find alternative
buyers, primarily in Asia, for its crude after the European Union banned its
imports in December, the curb on Russian refined products in February is set
to weigh on Russian production, in our view. Indeed, the Russian Deputy
Prime Minister Alexander Novak said on Friday the country will cut its oil
production by 500,000 barrels per day (bpd) in March.

Despite Novak’s claim that the production cut was aimed at improving the
market situation, we believe that the decision was probably due to recent
embargoes. We earlier noted that the EU ban on Russian refined products
such as diesel from 5 February will likely hurt Russia’s oil production as it
will face difficulty in finding sufficient buyers to make up for the loss of
European demand. The lack of adequate smaller tankers may also make it
more challenging for Russia to divert refined products to other markets. There
is also a limit to how much additional crude China and India can absorb,
in our view. Therefore, we expect Russian crude production to fall below 9
million barrels per day (mbpd) in 2023 from levels above 10mbpd at the start
of 2022 and 9.77mbpd in December.

China's unexpectedly abrupt reopening is giving a lift to global oil
demand. We believe two-thirds of growth in oil demand this year will come
from emerging Asia, led by China’s reopening—which we think will lift global
oil demand to above 103mbpd in the second half of the year. We believe
China’s economic recovery will be led by consumption, which we expect to
grow 7% this year after contracting 0.5% last year. Mobility data over the
Lunar New Year holiday are already showing signs of a sharp pickup in travel
with nearly 96 million people making trips on railways, planes, and ships
over the four-day period, up from 74.4 million in the same period last year.
Although cross-border travel is still around 20% of 2019 levels, we expect it
to recover with the recent removal of cross-border travel requirements with
Hong Kong and Macau.

Modest supply growth from non-OPEC+ will add to market tightness.
We expect non-OPEC+ nations to provide only modest supply growth this
year, adding 1.3mbpd primarily from US oil production, but trailing oil
demand growth of 1.6mbpd this year. Underinvestment in the exploration
and development of new oil supply, capital discipline, and high inflation are
also slowing supply expansion among non-OPEC+ producers. As a result, the
oil market is set to be dependent on OPEC+, which on Sunday forecast that
global oil demand will exceed pre-pandemic levels this year.

So, we maintain our positive outlook on oil as we continue to expect Brent to
rise to USD 110/bbl and WTI to USD 107/bbl this year. We reiterate our advice
for risk-taking investors to add long exposure via first-generation indexes or
longer-dated Brent contracts or to sell Brent’s downside price risks.