Abu Dhabi, UAEWednesday 18 September 2019

UBS cuts six-month forecast for Brent to $55 per barrel amid trade war concerns

The bank doesn't see a deepening of cuts by the Opec+ alliance at their technical committee meeting in Abu Dhabi next week

China has included US crude in its latest retaliatory tariffs targetting $75bn worth of imports. AP
China has included US crude in its latest retaliatory tariffs targetting $75bn worth of imports. AP

UBS has revised its six-month forecast for Brent even further to $55 per barrel amid concerns over slowing global economic growth as trade tensions remain high.

The Swiss lender had last month revised the outlook for the benchmark to $63 per barrel, expecting it to decline to $60 over the course of 12 months.

The six-month outlook for West Texas Intermediate, the benchmark tracking largely North American crude grades, has been revised down by $8 to $50 per barrel. The bank maintains its 12-month outlook for Brent at $60.

Brent was trading at $59.94 per barrel at 5.07pm UAE time on Friday, after having surged four per cent on Wednesday following positive economic data from China.

Economists at the Swiss investment bank expect global gross domestic product to grow at a rate of three per cent next year - the smallest increase since the financial crisis - thereby denting global demand growth for crude.

The US and China - the world's largest producer and importer of crude respectively - have traded tit-for-tat tariffs over the last few weeks. The US has since September 1 levied a 15 per cent tax on around $200 billion worth of imports from China. Beijing, meanwhile, has imposed retaliatory tariffs on $75bn worth of imports from the US, including crude for the first time.

UBS expects no further deepening of cuts at the meeting of Opec+ next week in Abu Dhabi. The alliance led by Saudi Arabia and Russia has been undertaking a balancing of global markets by drawing down 1.2 million barrels per day of output since January. The pact is expected to hold until the end of the first quarter of 2020.

"Risk to our forecasts may come from two sides. If trade tensions escalate further, oil demand growth may soften even more, requiring much lower prices," Giovanni Staunovo, commodity analyst at UBS said in a note.

"On the other hand, unexpected supply disruptions in the Middle East or a surprise production cut by Opec and its allies may push oil prices higher than in our new base case," he added.

Updated: September 6, 2019 05:44 PM

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