UBS cuts 6-month Brent price forecast as trade tensions weigh heavy

The bank maintains a constructive view on the three-month performance of prices, citing a draw down of inventory levels

The Swiss lender has revised its 12-month forecast to $60 per barrel on the basis of continued low demand growth. EPA

Swiss bank UBS revised its forecast for Brent down to $63 (Dh231) per barrel in six months, citing the impact of recent escalation in trade tensions between the US and China and low demand for crude.

The bank trimmed its six-month forecast by $7, and sees Brent falling further to $60 over the course of 12 months. In the short-run, however, the lender maintains a more positive forecast for prices, maintaining a three-month price projection of $65 per barrel, on the expectation of further draw down of crude inventories.

Brent futures for October settlement were trading at $60.65 per barrel at 4.42pm UAE time.

"Trade headlines have been the primary driver of oil prices in recent weeks – escalating tensions have hurt prices, while easing tensions have helped them,” Giovanni Staunovo, commodity analyst at UBS, said in a note.

US President Donald Trump’s decision to levy a 10 per cent tax on $300 billion worth of Chinese goods on August 1 caused the steepest single-day decline for Brent and West Texas Intermediate in four years. Brent lost 7 per cent of its value on that day and entered bearish territory as China let its currency depreciate, amid fears of a further weakening of its demand for oil. Moves by the US such as labelling Beijing as a currency manipulator, did further pushed the prices down. Mr Trump’s deferment of the tariffs from September 1 to December 15 to avoid hurting US consumers around the Christmas shopping season, however, helped revive prices. Brent also rose at the start of the week when a gas facility associated with a Saudi oil field came under attack from armed drones.

Crude prices also gained from a lower-than-expected decline in US inventories last week, while the Opec+ alliance continues to cut back to keep surplus in check.

"With Opec crude production at a five-year low, modest US crude production growth since December and sound fundamentals typical in the third and fourth quarters, we anticipate ongoing oil inventory draws in the coming weeks despite weaker demand growth,” UBS said of its three-month Brent price forecast.

The bank also downgraded its forecast for gas prices to $2.4 per metric million British thermal units, citing record-high US production.