UBS reports that recent revisions by major energy agencies indicate the crude oil market is expected to tighten in the second half of 2024. These updates include:
- International Energy Agency (IEA): Lower demand growth forecasts, citing weaker OECD demand and base effects.
- Energy Information Administration (EIA): Higher demand forecasts due to increased bunker fuel demand caused by Red Sea disruptions.
- Organization of Petroleum Exporting Countries (OPEC): Maintained demand growth forecasts.
UBS analysts noted that despite mixed revisions, the extension of OPEC+ voluntary cuts is expected to maintain market tightness for the rest of the year. The IEA and EIA predict limited OPEC+ production increases.
Demand growth estimates for 2024 and 2025 have been slightly reduced to 1.1 million barrels per day (Mb/d) and 1.0Mb/d, respectively. Non-OPEC+ supply forecasts remain largely unchanged, except for a slight upward revision by the EIA for 2024.
UBS anticipates Brent crude prices to rebound to the mid to high-$80s due to OPEC+ cuts and seasonal demand increases. Prices are expected to stabilize at $80 per barrel in 2024 as OPEC+ gradually increases production from Q2 2025.
In the long term, rising efficiency and the impact of electric vehicles are projected to slow demand growth to about 0.5Mb/d within 3-4 years, with peak oil expected by 2029. Despite this, global spare capacity is expected to remain stable.
Key risks include more restricted supply from extended OPEC+ cuts and potential drops in Russian production, which could push Brent prices above $90 per barrel. Further geopolitical tensions in the Middle East could drive prices closer to $100 per barrel. Conversely, a global economic slowdown could reduce demand and drop prices below $75 per barrel.
