Swiss bank UBS today forecast an end to declining oil prices through to 2016 due to “greater clarity” on geopolitical issues, including the Iranian nuclear deal.
The firm predicts improved supply-demand balance as a result, with Brent and West Texas intermediate standing between $67-72 per barrel by the end of 2015.
UBS did, however, caution investors to keep an eye on non-OPEC producers as the oil price recovers.
“While OPEC will likely continue its output-maximising strategy, a sharply lower rig count and significant reductions in drilling capex in the United States will slow production to rates that will sharply impact the oil market next year,” the firm said.
UBS said demand was likely to stay strong despite a slight slowdown experienced as the “cold winter weather tapers off and OPEC countries strategically stockpile their barrels”.
It forecast demand could increase from 0.8 million barrels per day in 2014 to 1.4 million in 2015, reducing slightly to 1.3 million barrels per day in 2016.
“The outlook for oil prices during the second half of the year is quite positive, even when we consider the downturn that Brent prices have taken these past few weeks. As non-OPEC supply growth decelerates and demand for oil increases, oil prices are still on track to trade at around $70 per barrel,” said UBS Wealth Management global chief investment officer Mark Haefele.
“The oil market is intrinsically sensitive to economic and geopolitical developments around the world. The uncertainty surrounding ‘Grexit’ and the sharp slide in Chinese stocks dampened the outlook and eroded fundamentals in a market that was already suffering due to oversupply. Now that some of these situations have moved away from deep uncertainty, our analysis shows that energy equities offer value for investors,” he added.
UBS advised investors to hold more than usual in global energy equities on a tactical basis following falls from 2014 going into 2015. The bank said average above-market returns were likely in the next 12 months. This was based on analysis of the two previous times the relative valuation of the US energy sector was this low in the past 30 years.