In the opinion of strategists at UBS, the recent weakness in the oil price –which has shaved 23% off Brent crude since the mid-June peak – is not justified by market fundamentals. Here are three reasons that highlights upside for oil.
Imports from China look set to pick up
“Oil demand will be bolstered globally by its increasing use to generate electricity, reflecting the rising price or reduced availability of gas and coal.”
“Imports from China look set to pick up. Business portal Caixin has estimated that 65 million people in 33 Chinese cities are now under semi-lockdown conditions, as the government seeks to curb outbreaks of the virus. Despite this, we see a rebound in crude imports from China from such atypically low levels. Meanwhile, although China’s economic recovery has been bumpy, we see growth reviving in the coming months.”
“Global oil supplies look set to come under pressure later in the year. This is partly due to an end to sales of strategic oil reserves from OECD countries. In addition, Europe’s decision to stop imports of close to 3 million barrels a day of Russian oil will only fully take effect close to the cut-off point in December (for crude) and February (for refined products). Also, efforts to bring more Iranian oil to the global markets are still in the balance.”
“We expect Brent to end the year around $125 a barrel.”
