The price of crude oil is forecast to remain low in the short-term, although the outlook is anticipated to strengthen in the second half of 2015, according to the latest research from UBS Wealth Management.
Oil prices, which are currently hovering around the $48 per barrel mark, are expected to reach between $67-72 per barrel by the end of 2015, UBS said.
Crude prices are down almost 60 per cent compared to a high of $115 in June and have dropped between 12-15 per cent since the start of 2015, mainly on the back of increased shale oil supply from the US and falling demand.
“Investors are being urged to avoid direct exposure to oil, with the lack of supply adjustments from OPEC keeping oil prices lower and providing backdrop for further price extremes over the next three months,” the report said.
It indicated that over the first half of 2015, oversupply is expected to hit between 1–1.5million barrels per day (bpd).
On Wednesday, the US Energy Information Administration (EIA) said that domestic crude oil stocks had risen by almost nine million barrels week-on-week to nearly 407 million, the highest level since the government began keeping records in 1982.
Although the oil market is rebalancing, as seen by the curtailments in capital spending, there will be a lag in the impact on supply, the report said.
Mark Haefele, global chief investment officer, UBS Wealth Management, said: “The outlook for oil in the first half this year remains negative, amid the lack of immediate supply adjustments in an oversupplied market.
“That said, with non-OPEC supply growth decelerating and demand for oil improving in the second half of 2015, we expect oil prices to rise and trade around the $70 dollar per barrel mark as we head in to 2016.”
The report suggests there is a 25 per cent probability that Brent and West Texas crude oil prices could stay below $40 per barrel over the next six months.
The bank’s 12-month forecasts, which still signal a recovery in crude oil prices, are lower than previous estimates, at $72 per barrel and $67 per barrel respectively for Brent and West Texas crude.