The price of Brent crude oil has fallen to levels below those before the Hamas attack on Israel last month, reaching $79/barrel. Oil is down 9.3% so far in November, a move that follows October’s previous decline of 8.3%.
This price move followed signs of a slowdown in US energy demand. However, UBS believes that global consumption will remain strong and the risk of supply disruptions has not gone away. Investors also appear to have less concern about the involvement of third Middle Eastern countries in the Israel-Hamas war, which could cause disruptions in the oil market.
UBS expects oil to return to $90 or $100/barrel as global crude consumption remains high and risk remains. Oil consumption in the US is expected to decrease, but in markets such as China and India an increase is expected.
Major oil producers remained disciplined in output, keeping supply steady. Saudi Arabia and Russia recently announced that supply cuts would remain in place until December, but statements from both countries said the cuts would be reviewed next month to decide whether they should be extended, increased or reduced – depending on with market conditions.
The risk of oil production disruption due to the Israel-Hamas war has not been eliminated. UBS believes that there will be no escalation of tension, but the situation in the region continues to be fluid and there is still a risk for oil production, in case of involvement of neighboring countries.
“We expect oil to rally after the recent period of weakness. We continue to recommend that risk-taking investors add long-term exposure through longer-duration Brent contracts, which trade at a discount to spot prices, or sell down-trending Brent contracts,” notes Mark Haefele, Chief Investment. Officer of UBS Global Wealth Management.
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