UBS allowed oil prices to fall below $50 per barrel. What is behind this scenario?

UBS warned of the risks of oil prices falling in the coming months - in the baseline scenario to $60-65 per barrel, in the worst case - below $50.  Switzerland's largest bank forecasts weakening demand for energy carriers and increased oil production by the OPEC+ cartel. The combination of these factors may lead to a surplus in the market.

In the short term, the oil price may be in the range of $60-65 per barrel, warned a team of UBS analysts led by Henri Patricot in the June review, which is available to Oninvest. The reason is weakening demand and uncertainty in OPEC+ policy, which is weighing on market sentiment. As supply from the oil-producing cartel grows and consumption declines, the market may move into a surplus zone. Low prices, in turn, should provoke a response from producers, especially US producers. The baseline scenario for US shale production is a decline in activity and a slowdown in efficiency gains.

UBS sees short-term potential for oil prices growth in supply-side constraints. First of all, in a possible significant reduction of oil production and exports from Iran during the second presidential term of Donald Trump. A reduction in production by 0.5 million barrels per day could bring Brent back to $70, the bank believes.

An additional factor may be the improved discipline of OPEC+ member countries, especially in terms of commitments by Iraq, Kazakhstan and Russia to compensate for earlier overruns by reducing production. Combined with a smaller-than-expected impact of duties on demand, this will push Brent above $75, UBS forecasts;

Most likely, in this case, the oil cartel will increase production more actively. However, with such high prices, the opposite scenario is also possible - with stable demand, sluggish response outside OPEC and slowing growth of production in the U.S. prices may consolidate around $80 per barrel and higher, the review says.

In the negative scenario, UBS envisages a sharp drop in demand due to the global economic downturn - by about 0.5 mln bpd compared to current forecasts. In the event of a recession, it is more likely that OPEC+ will start to fight more aggressively for consumers. The cartel's ramping up production to increase its market share, rather than just to meet quotas, could temporarily push Brent prices below $50 a barrel, the bank warned.

Oil on June 25 rose by 0.8% in London as traders try to gauge how sustainable the truce between Iran and Israel is. Additional support was provided by fresh statistics from the U.S., indicating the continuation of relatively strong demand in the world's largest economy, reports Reuters. 

On June 24, following the truce announcement, Brent fell to its lowest level since June 10 and North American WTI to its lowest level since June 5 - that is, before Israel attacked key nuclear and military sites in Iran. Earlier this week, oil prices jumped to a five-month high - when the U.S. Air Force carried out its operation and struck Iran's nuclear infrastructure over the weekend.

Oil has become 10% cheaper since the start of 2025. Concerns about the risks of supply disruptions have eased and expectations of an oversupply in the market have kept prices in check, notes The Wall Street Journal.

This article was AI-translated and verified by a human editor