UBS Raises Year-End Brent Forecast to $110 on Middle East Supply Risks

UBS has raised its forecast for Brent crude oil, now projecting prices will reach $110 per barrel by the end of the year, up from a previous estimate of $100. The bank attributed the revision to persistent supply volatility in the Middle East, falling oil inventories, and soaring freight rates.

Updated Price Targets

In a research note, UBS strategist Giovanni Staunovo outlined a series of upward revisions for Brent crude, reflecting a more constructive near-term outlook. The bank's updated forecasts are as follows:

• Year-end 2026: Raised to $110 from $100 per barrel.
• March 2027: Raised to $95 from $90 per barrel.
• June 2027: Raised to $90 from $85 per barrel.
• September 2027: Raised to $85 from $80 per barrel.

Additionally, UBS widened its projected discount for West Texas Intermediate (WTI) crude relative to Brent, increasing it to $10 for December while maintaining a $4 discount for 2027.

Geopolitical Tensions and Shipping Costs

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The primary driver for the revised outlook is the heightened risk to oil supply chains. According to the note, Middle Eastern crude flows have recovered to approximately 18.8 million barrels per day (bpd) in early October, still below the pre-conflict level of 19.9 million bpd.

Logistical challenges have intensified, with a record 30 attacks on ships reported in and around the Strait of Hormuz in October. This has caused tanker freight rates from the Middle East to China to skyrocket to $30 to $40 a barrel, a sharp increase from the $1 to $3 range seen over the last decade. UBS noted that rising insurance costs and the increased need for ship-to-ship transfers are further straining tanker capacity.

Dwindling Inventories

Supply-side pressures are being compounded by a significant drawdown in global oil stockpiles. UBS reports that global visible oil inventories have fallen by more than 500 million barrels since February, largely due to releases from strategic reserves.

With these strategic releases now mostly concluded, the bank anticipates a sharper decline in commercial inventories. On the demand side, a recovery in Chinese crude imports, potentially reaching 10 million bpd in October, adds further support to prices. Despite the constructive outlook, UBS cautioned that "uncertainty around our forecasts remains elevated," citing the unpredictable nature of the Middle East conflict and the pace of global demand recovery.