UBS Hikes Oil Price Forecasts on Tightening Supply and Geopolitical Risks

UBS has significantly raised its oil price forecasts for the next three quarters, citing an increasingly tight market, shrinking inventories, and persistent geopolitical risks to supply. In a note to clients, the bank said it now sees the global benchmark Brent crude ending the year at $95 a barrel, a notable increase from its previous forecast of $85.

Revised Forecasts

According to UBS strategist Giovanni Staunovo, the bank has adjusted its price targets across the forecast horizon. The updated projections include:

• Year-end 2026: Brent crude forecast raised to $95 per barrel from $85.
• March 2027: Brent forecast lifted to $90 per barrel from $80.
• Mid-2027: Brent expected to trade at $85 per barrel.
• September 2027: Forecast remains unchanged at $80 per barrel.

UBS continues to assume a $4 discount for West Texas Intermediate (WTI) crude relative to Brent.

Supply Squeeze Drives Upgrade

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The upward revision is underpinned by evidence of a rapidly tightening market. Staunovo highlighted that oil-on-water inventories have fallen by 150 million barrels over the past two months. This decline is attributed to lower crude exports in August from the Middle East, Russia, Mexico, the North Sea, and Brazil.

Persistent supply risks also contribute to the bullish outlook. The strategist pointed to recent strikes on Saudi Arabian energy facilities and threats from Iranian officials as factors skewing price risks to the upside in the near term.

Market Context and Outlook

The forecast adjustment comes as Brent crude has already climbed above $100 a barrel, surpassing UBS's new year-end target. Despite the high spot price, the bank's forecasts remain above current market pricing for future delivery due to a downward-sloping futures curve.

"We therefore retain a moderately constructive outlook for crude oil," Staunovo wrote. However, he cautioned that "uncertainty remains elevated" given the ongoing conflict in the Middle East and the uncertain pace of recovery in both production and demand from the Gulf region.