Oil is poised to rally beyond $90 per barrel by the end of the year amid record demand and tightening supply, according to UBS strategists.
"We still see scope for global oil prices to rally,” said a recent UBS note to investors. “We now expect Brent to hit USD 95/bbl and the US WTI benchmark to rise to USD 91/bbl by end-December, up from the current USD 90/bbl and USD 85/bbl, respectively."
Brent International (BZ=F) prices stand just below $85 per barrel, about 3% off year-to-date highs reached earlier in August. West Texas Intermediate (CL=F) is hovering above $80 per barrel.
Concerns over China’s economy, the world’s second-largest consumer of crude, recently has put pressure on crude futures. Data released Tuesday by China's National Bureau of Statistics added to concerns of a sluggish recovery as Beijing unexpectedly cut policy rates and withheld information on youth unemployment.
"Some investors remain skeptical that China’s latest stimulus efforts—a 15- basis-point cut to its one-year medium-term lending facility (MLF) and a 10bps cut to the short-term 7-day reverse repo rate—will be sufficient to revive demand," the UBS note said. "China is the world’s largest oil importer, the second-largest consumer, and the seventh-largest producer."
However, UBS strategists don’t expect the price slide to persist amid firming fundamentals. Those include declining inventories and tight supply as OPEC+ production nears a two year low.
OPEC+ has been cutting production since October of last year. Saudi Arabia recently extended its one million barrel-per-day output reduction into September, while Russia announced it will slash oil exports.
“We expect global oil demand to hit a record high in August,” the note said.
Goldman Sachs analysts recently reaffirmed their forecast of $93 per barrel for Brent crude and $86 per barrel for WTI by December, highlighting the market is less "pessimistic" about the global economy.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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