Investing.com - The major energy agencies have all recently made revisions to the likely oil balances this year and next, but they still point to the crude market tightening in the second half of 2024, according to UBS.
These revisions included a bearish update from the International Energy Agency, seeing lower demand growth, a bullish update from the Energy Information Administration, with higher demand, and a neutral one from the Organization of Petroleum Exporting Countries.
“With the extension of the OPEC+ voluntary cuts, the IEA and EIA see market tightness persisting for the rest of the year assuming that OPEC+ production will increase only marginally,” analysts at UBS said, in a note dated June 18.
The agencies made mixed revisions to demand growth forecasts this month: the IEA cut forecasts, the EIA raised and OPEC left them unchanged again.
The IEA's downward revision was driven by weaker OECD and base effects, while the EIA also noted lackluster OECD demand, but raised forecasts on increased bunker fuel demand caused by Red Sea disruptions.
With this in mind, “we marginally cut demand growth estimates to 1.1Mb/d in 2024 and 1.0Mb/d in 2025,” UBS said.
Turning to supply, the agencies kept their non-OPEC+ supply forecasts broadly unchanged, except for the EIA's 2024 growth estimates, up 0.1 million barrels a day (b/d) on better-than-expected U.S. supply in 1H24.
Additionally, despite OPEC+'s announced plan to gradually phase out its voluntary cuts potentially as early as October 2024, we continue to model the first return of OPEC+ barrels in the second quarter of 2025 when market balances should allow for a gradual ramp-up.
In the very near term, UBS expects Brent to rebound to the mid to high-$80s, supported by the OPEC+ cuts extension and the seasonal rebound in demand.
Brent is then set to move to $80/bbl next year as OPEC+ starts to bring back production gradually from the second quarter.
“We do expect a negative impact on oil demand from slower GDP growth and higher prices but continue to expect demand to grow until the late 2020s,” UBS said.
Rising efficiency and EVs' increasing impact should see demand growth slow down sharply though, to around 0.5Mb/d within 3-4 years and peak oil by 2029. Despite this demand slowdown, we expect global spare capacity to remain stable at an average level by historical standards as supply growth slows down too.
In the near term, we see the main upside risks coming from more restricted supply.
“Extended OPEC+ cuts and potentially a larger drop in Russian production, combined with robust demand could lift Brent above $90/bbl in the near-term in our view. Further escalation in the Middle East and disruption to supply could send it closer to $100/bbl,” UBS added.
The bank’s downside scenario assumes a greater negative impact on oil demand from a global economic slowdown to the tune of around 1.0Mb/d versus its forecasts.
“Combined with a reduced geopolitical risk premium, this could see Brent prices drop below our long-term oil price of $75/bbl.”