UBS Lowers Oil Price Forecasts for 2024-2026

UBS analysts released a note on Monday indicating a downward revision of oil price forecasts for the period from 2024 to 2026. The analysts attributed this decision to a decline in global demand and a more stable outlook for supply.

The revised prediction for crude oil prices in the fourth quarter of 2024 has been lowered from $83 to $75 per barrel, reducing the average price for 2024 by $4 to $80 per barrel. This bearish outlook reflects weaker global demand, particularly influenced by slower economic growth in major markets like China.

For 2025 and 2026, the expected price for Brent crude has also been adjusted downward by $5, now standing at $75 per barrel. UBS analysts believe that OPEC+ will likely have to delay the unwinding of its voluntary production cuts, with any significant increases in output expected to be postponed until 2027 or 2028, rather than the previously anticipated mid-2025 timeframe.

As the market remains delicately balanced, the combination of weaker demand and steady growth in non-OPEC+ supply has lessened the urgency for OPEC+ to increase production. The output increase that was scheduled for October 2024 has now been pushed back by two months.

The analysts note, “The market is just about balanced next year, assuming no unwind. In the near term, we still see it in deficit in the second half of 2024, with inventory draws likely to provide support, especially given the very low net positioning on crude.”

Weaker demand growth is identified as a significant downside risk for oil prices. UBS has revised its 2024 global demand growth estimate down by 0.1 million barrels per day (Mb/d) to approximately 1 Mb/d, largely due to the deceleration of the Chinese economy, which plays a critical role in global oil consumption. China’s projected demand growth has similarly been reduced by 0.1 Mb/d, now expecting an increase of 0.3 Mb/d in 2024. Additionally, UBS has lowered its forecast for China’s GDP growth to 4.6%, down from an earlier estimate of 4.9%.

For 2025, UBS anticipates slightly subdued demand growth, estimating an increase of around 1 Mb/d. This contrasts with the wider range of expectations from the International Energy Agency (IEA) and OPEC, which varies from 1.0 Mb/d to 1.7 Mb/d for the same period. The tempered demand outlook indicates a likelihood of softer prices unless there are significant supply disruptions or changes in broader economic conditions.

An unexpected increase in non-OPEC+ supply is further contributing to a looser market balance. UBS has raised its non-OPEC+ supply growth forecast by 0.1 Mb/d for both 2024 and 2025, primarily due to rising production in the U.S. It is projected that U.S. liquids production will rise by 0.6 Mb/d in 2024 and 0.8 Mb/d in 2025, mainly driven by natural gas liquids (NGLs).

However, UBS also points out that U.S. crude oil production growth is likely to decelerate until early 2025, due to reduced drilling activity and potential weather-related disruptions. U.S. shale producers are maintaining capital discipline, focusing on efficiency and slowing rig deployments, which may restrain future production growth.

The analysis presents a range of possible oil price outcomes, suggesting a trading range of $65 to $85 per barrel for Brent crude. Prices could trend toward the upper end of this range if demand growth exceeds expectations or if OPEC+ adheres strictly to production cuts. An escalation of geopolitical tensions, particularly in the Middle East, could further elevate Brent prices above $90 per barrel.

Conversely, a global recession poses a major risk to prices, potentially leading to a drop into the $60s due to reduced demand. Should OPEC+ choose to increase production aggressively to maintain market share in response to rising non-OPEC+ supply, prices could fall below UBS’s forecast range.

Looking ahead, UBS continues to project modest global demand growth until the late 2020s, after which a sharp decline is expected. The increase in vehicle fuel efficiency and the rapid uptake of electric vehicles (EVs) are anticipated to significantly influence this trend. UBS predicts that oil demand growth will decrease to 0.5 Mb/d within the next three to four years, with peak demand likely reached by 2029. By 2030, the firm expects that rising EV adoption will replace 3.4 Mb/d of oil consumption globally, compared to just 0.9 Mb/d in 2024, exerting long-term downward pressure on oil demand.