Analyst are split as to how far oil might drop next year

A worker in the Texas oilfields.

Analysts are divided on the outlook for oil prices over the next year or so, with diverging opinions as to whether the market will edge into oversupply, or remain tightly balanced.

The UBS Global Research and Evidence Lab has extended its forecast supply deficit, and lifted its oil price outlook for next year accordingly.

But Citi analysts are more bearish, expecting supply issues to ease, pushing prices lower next year.

“The Saudi appetite to withhold oil from market, supported by Russia maintaining a certain level of export constraint, points to higher prices in the short-term, all else equal, but $US90 prices look unsustainable given faster supply growth than demand growth ex-Saudi/Russia,’’ Citi says.

“Demand looks constrained as the pandemic recovery factors continue to ease off and peak transport fuel demand looms, while supply is growing in non-OPEC+ suppliers from the US to Brazil, Canada, and Guyana, but also likely in Iran, Iraq, Libya, Nigeria, and Venezuela.

“Meanwhile, Saudi crude exports may yet tick up post-summer as domestic crude burn eases,

even if outright output stays level.

“And Saudi Arabia has also signalled that it may taper or end cuts if prices get too high.’’

Citi analysts see Brent crude prices averaging $US82 per barrel in the fourth quarter of this year, before moving to the low $US70 range in 2024.

UBS analysts disagree, lifting their Q4 price to $US92 from $US85 and the 2024 price to $US87 per barrel, up from $US80.

UBS says this reflects “increasing supply tightness over the third quarter holding the oil market in deficit until the second quarter of 2024, supported by large inventory draws having materialised in parallel with Saudi Arabia’s voluntary one million barrels per day production cut’’.

“We expect the market remains in a small deficit over the fourth quarter of 2023 until the second quarter of 2024 and then model Saudi Arabia rolling back half its production cut in the third quarter and the remainder of the cut in 2025 when the broader OPEC+ group should also gradually unwind its voluntary cut.

“Given these recent OPEC+ actions, we see Brent more likely to trade in a $US80-$US90 range over the next 18 months.”

UBS said China has been the key contributor on the demand side, “however, we expect global oil demand growth to slow in 2024 to 1.1 million barrels per day, which is at the lower end of agency estimates’’.

UBS has left its gas price forecasts unchanged.

“We see near-term risk skewed to the downside in Europe for this reason as storage is now very close to full capacity, but we still expect (gas) prices to bounce back this winter,’’ UBS says.

UBS said Santos remained its favoured pick among Australian energy stocks, lifting its earnings per share forecast by up to 20 per cent “primarily due to higher oil prices’’.