UBS: Oil prices will spike 115% by the end of 2020 in a dramatic reversal of the current crisis
- UBS' wealth management arm forecast that Brent crude oil prices could rise by 115% by the end of 2020.
- Mark Haefele, chief investment officer at UBS Global Wealth Management said he expects the oil market to "become under-supplied in 4Q," pushing prices up to $43 per barrel.
- Oil prices have been volatile in recent days due to lack of storage options, and last week US oil dropped into negative territory for the first time in history.
- On Monday oil prices plummeted 30% after United States Oil Fund, one of the biggest exchange traded funds in oil announced it would sell all futures contracts for delivery in June over a four day period.
- Follow the price of oil live with Markets Insider.
Oil prices have tanked in recent days as traders scramble to find places to store oil, but UBS expects the reverse situation to happen in the fourth quarter of the year.
The Swiss bank expects Brent prices to climb back to $43 a barrel in the second half of the year once economies are expected to be back in running and have exited lockdowns.
Mark Haefele, chief investment officer at UBS Global Wealth Management, said: "While the oil market is heavily oversupplied this quarter, we expect it to move toward balance next quarter and become under-supplied in 4Q this year as lockdown restrictions are eased and oil demand picks up."
He added: "We forecast Brent to recover to $43 a barrel by year-end."
An increase to $43 per barrel for Brent would represent a gain of around 115% from its currently price, with the international benchmark trading at around $20 per barrel on Tuesday.
Oil prices have been volatile in recent days as traders are fearing the world is running out of global oil storage.
On Monday oil prices plummeted 30% after United States Oil Fund, one of the biggest exchange traded funds in oil announced it would sell all futures contracts for delivery in June over a four day period.
US oil prices had turned negative for the first time in history last week as the May contract expired, meaning traders had to pay people to take the oil off their hands as storage facilities were limited, particularly at a key storage facility in Cushing, Oklahoma.
Coronavirus has battered demand for the fuel, with every major economy into lockdown, and economic activity remains subdued.
Some US states, including Oklahoma, have started reopening their economies this week, and several others are doing the same and lifting stay-at-home orders by Thursday, likely boosting economic activity and oil consumption in the coming weeks.
Naeem Aslam, chief market analyst at Avatrade, said: "Overall, I do contemplate that fundamentals are improving to a small extent because the US shale oil rig count has dropped vividly over the last week, and it is bound to have a positive influence on supply."
He added: "As for the demand side, I reason we have hit the bottom. This is because, with the easing global lockdown measures, it is only a matter of time when we will start witnessing the demand equation showing more signs of life."
Meanwhile, oil giant BP reported a 66% drop in first quarter profits on Tuesday as the impact of coronavirus bites companies across the globe, particularly the energy sector.
"Our industry has been hit by supply and demand shocks on a scale never seen before," Bernard Looney, BP's CEO said in a statement.