Morgan Stanley, UBS analysts cut oil outlooks on recession fears

SINGAPORE – Mounting fears of recession in major economies as well as China’s inability to throw off its virus shackles have oil analysts slashing their price forecasts for the rest of this year.

Morgan Stanley and UBS Group cut their near-term outlooks for crude by as much as US$15 a barrel amid the deteriorating backdrop, and as Russian oil keeps flowing to Asia and elsewhere.

Brent crude has plunged by around a third since peaking in early March following Russia’s invasion of Ukraine. It is tipped to drop further over the next few months, although it may rebound next year as economies recover and less Russian crude makes it to market.

Morgan Stanley reduced its near-term outlook for Brent due to inflation and a sharp slowdown in demand, its analysts said in a note. It cut its price outlook for the third quarter by US$12 a barrel to US$98, and lowered its estimate for the fourth quarter by US$5 to US$95.

The bank maintained quarterly forecasts for 2023 at US$100 and above as it sees a firmer market from the second quarter.

Russian oil exports are likely to decline materially, with an estimated drop of 1.5 million to two million barrels a day into early 2023.

UBS slashed its year-end forecast for Brent by US$15 a barrel to US$110 on China lockdowns and still-elevated Russian exports, its analysts said in a note.

The restrictions in China will slow the near-term demand recovery despite the rise in crude imports in August.

Russian exports have been more resilient than expected, with high volumes of crude flowing into European countries such as Italy.

UBS expects Brent crude to recover to US$125 a barrel by the end of September 2023 as the market tightens due to the end of strategic reserve sales and more demand for oil products to generate electricity.

Goldman Sachs Group expects Brent to rise towards its 2023 forecast of US$125 a barrel in the event of an agreed price cap on Russian oil exports, its analysts said in a note released on Sept 2.

Russian supply is likely to fall by one million barrels a day compared with levels prior to the Russia-Ukraine war under such a scenario, they said. BLOOMBERG