Oil Price Forecast - June 22
Posted: Thu Jun 22, 2023 3:09 pm
Note that I just received from UBS, Chief Investment Office GWM
Investment Research
> Production cuts by OPEC+ member states have dragged OPEC crude
exports to a one-year low. Exports are likely to fall further in July as a
result of the unilateral Saudi production cut.
> With demand seasonally rising over the coming months, we expect
larger oil inventory declines to become visible and support oil prices.
> Hence, we continue to advise risk-taking investors to add long exposure
via first-generation indexes or longer-dated Brent contracts, or to sell
Brent’s downside price risks.
The implementation of the voluntary production cuts by several OPEC+
member states has pushed OPEC crude oil exports to the lowest level since
June 2022. OPEC crude exports are running around 0.9mbpd lower over
the first three weeks of June than in April, according to data from Petro
Logistics. Saudi Arabia has done the heavy lifting, cutting their exports by
more than 1mbpd. Exports from the UAE and Kuwait are also running
lower. Iraqi exports were up marginally after a large drop in late March,
when exports from northern Iraq were shut in. Nigeria has offset a larger
drop in OPEC exports, with Nigerian exports up almost 0.5mbpd versus
April following the end of strikes.
We expect OPEC exports to fall further in July, with Saudi Arabia cutting its
production by 1mbpd next month. The last time the Kingdom unilaterally
cut its production by the same amount in February 2021, the move
translated to a similar drop in crude exports. Higher official Saudi selling
prices for July will have also likely reduced demand for Saudi barrels. As
such, we expect Saudi exports to come in below 6mbpd in July, levels last
seen in June 2020.
With oil demand seasonally rising during the Northern Hemisphere summer
alongside the lower supply, the result should be larger oil inventory declines
ahead. This is likely to be first seen in lower oil on tankers in transit before
later impacting on-land oil inventories.
UBS official forecasts for Brent oil
> $85/bbl by September 2023
> $90/bbl by December 2023
> $95/bbl by March 2024
> $95/bbl by June 2024
Upside scenario
Brent crude oil December 2023 target: USD $120–150/bbl
Upside risks to our forecasts include a large and long-lasting disruption of
Russian crude production and destabilizing political events in oil-producing
regions like Libya, Venezuela, Nigeria, and the Middle East, which could
trigger a sharp drop in supply for a sustained period. A faster-than
expected recovery in oil demand as mobility picks up in China and an even
slower production response (i.e., increase) from the US would also be price
supportive.
Downside scenario
Brent crude oil December 2023 target: USD $40–70/bbl
Downside risks include a deep recession or renewed extended mobility
restrictions that weigh on the oil demand recovery. A hard landing for the
Chinese economy in 2023 would also pose a downside risk, as emerging
Asia is the engine of oil demand growth. Another concern is that capital
discipline in the US could start to erode. Also, the return of disrupted oil
production in Venezuela and Iran could weigh on prices.
Investment Research
> Production cuts by OPEC+ member states have dragged OPEC crude
exports to a one-year low. Exports are likely to fall further in July as a
result of the unilateral Saudi production cut.
> With demand seasonally rising over the coming months, we expect
larger oil inventory declines to become visible and support oil prices.
> Hence, we continue to advise risk-taking investors to add long exposure
via first-generation indexes or longer-dated Brent contracts, or to sell
Brent’s downside price risks.
The implementation of the voluntary production cuts by several OPEC+
member states has pushed OPEC crude oil exports to the lowest level since
June 2022. OPEC crude exports are running around 0.9mbpd lower over
the first three weeks of June than in April, according to data from Petro
Logistics. Saudi Arabia has done the heavy lifting, cutting their exports by
more than 1mbpd. Exports from the UAE and Kuwait are also running
lower. Iraqi exports were up marginally after a large drop in late March,
when exports from northern Iraq were shut in. Nigeria has offset a larger
drop in OPEC exports, with Nigerian exports up almost 0.5mbpd versus
April following the end of strikes.
We expect OPEC exports to fall further in July, with Saudi Arabia cutting its
production by 1mbpd next month. The last time the Kingdom unilaterally
cut its production by the same amount in February 2021, the move
translated to a similar drop in crude exports. Higher official Saudi selling
prices for July will have also likely reduced demand for Saudi barrels. As
such, we expect Saudi exports to come in below 6mbpd in July, levels last
seen in June 2020.
With oil demand seasonally rising during the Northern Hemisphere summer
alongside the lower supply, the result should be larger oil inventory declines
ahead. This is likely to be first seen in lower oil on tankers in transit before
later impacting on-land oil inventories.
UBS official forecasts for Brent oil
> $85/bbl by September 2023
> $90/bbl by December 2023
> $95/bbl by March 2024
> $95/bbl by June 2024
Upside scenario
Brent crude oil December 2023 target: USD $120–150/bbl
Upside risks to our forecasts include a large and long-lasting disruption of
Russian crude production and destabilizing political events in oil-producing
regions like Libya, Venezuela, Nigeria, and the Middle East, which could
trigger a sharp drop in supply for a sustained period. A faster-than
expected recovery in oil demand as mobility picks up in China and an even
slower production response (i.e., increase) from the US would also be price
supportive.
Downside scenario
Brent crude oil December 2023 target: USD $40–70/bbl
Downside risks include a deep recession or renewed extended mobility
restrictions that weigh on the oil demand recovery. A hard landing for the
Chinese economy in 2023 would also pose a downside risk, as emerging
Asia is the engine of oil demand growth. Another concern is that capital
discipline in the US could start to erode. Also, the return of disrupted oil
production in Venezuela and Iran could weigh on prices.