UBS lifts oil forecast slightly, but flags bearish fundamentals

UBS has slightly raised its near-term oil price forecasts, including its 2025 Brent crude forecast to $67/barrel and Q3 to $65/barrel, citing lingering geopolitical risks. However, the bank maintains a bearish long-term outlook, anticipating growing market surpluses due to OPEC+ unwinding production cuts and waning seasonal demand, which could push Brent into the low-$60s by late 2025 and potentially below $60. This shift indicates that while geopolitical tensions offered temporary support, the market's focus is returning to fundamental oversupply, signaling a challenging trajectory for crude prices.

Analysis

UBS has revised its oil price forecast, signaling a near-term acknowledgment of geopolitical risk premiums while maintaining a bearish medium-term outlook based on market fundamentals. The bank modestly increased its 2025 Brent crude forecast by $1 to $67 per barrel and its Q3 2024 forecast by $3 to $65, reflecting the lingering impact of Iran-Israel tensions that briefly pushed prices above $80 in the second quarter. However, the core of the analysis is a pivot back to fundamentals, which UBS describes as bearish. The bank anticipates growing market surpluses driven by OPEC+ unwinding production cuts, with a specific output hike expected in August, and waning seasonal demand. This supply-demand imbalance is projected to push Brent prices into the low-$60s by late 2025, with a potential downside below $60 if demand weakens further. While renewed geopolitical events or tighter OPEC+ compliance are noted as potential upside risks, the primary catalyst for investors to watch is the cartel's early August decision on production levels, which is viewed as a more definitive indicator than the preceding July meeting.

Key Decisions for Investors

• Given the forecast for growing surpluses and a price decline to the low-$60s by late 2025, investors should evaluate their long-term crude positions for potential downside risk driven by fundamentals.
• Traders should closely monitor OPEC+ production announcements, specifically the early August decision, which UBS has flagged as a more significant market-moving catalyst for supply than the July meeting.
• Consider that while the fundamental outlook is bearish, any renewed geopolitical flare-ups could cause sharp, temporary price spikes, presenting tactical opportunities for those positioned to fade such rallies.