UBS House View Daily

Thought of the day

13.09 - Will oil rally as hurricane impact fades?

Hurricane Harvey’s impact on the US oil industry has been significant, disrupting oil production, refinery production and port infrastructure. With refineries running below capacity and imports recovering, crude stockpiles are forecast to rise in the week to 8 September. Ahead of official data on 13 September, the industry group American Petroleum Institute put the rise at 6.2m barrels, almost twice as much as the market expected. Rising inventories of crude oil are often seen as signs of a supply glut that could weigh on prices.

But the impact of Hurricane Harvey, and Irma in its wake, should only be temporary and we believe US crude prices should move higher:

  • Robust second quarter demand in 2017 has prompted the International Energy Agency to raise its forecast for 2017 global oil demand growth by 7% to 1.6m barrels per day (bpd), the biggest increase since 2015.
  • OPEC has raised its forecast for 2018 global oil demand growth by 5% to 1.35m bpd. Expected demand increases and modest cuts to non-OPEC supply growth imply a 420k bpd tighter market in 2018 than previously forecast.
  • Oil producers are sticking more closely to their current production cut agreement and are considering extending it "well into the second half of 2018." OPEC compliance for August rose to 82% from 75% in July and non-OPEC compliance moved above 100%.

So we believe short-term volatility should give way to firmer crude prices as global supply and demand rebalances. Our forecast is for crude prices to reach USD 55-60/bbl in the fourth quarter of this year

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