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Oil price outlook: Crude could top $125 soon, say analysts

By Munikoti Rochan

14:05, 14 July 2022

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COILQ22
Brent Crude Oil Futures Aug 2022
116.15 USD
-1.82 -1.540%

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Lightning strikes the skies behind an oil pump in California, US.
Crude oil prices could top $125 a barrel soon - Photo: Getty Images

Oil and gas producer Chevron’s chief executive Michael Wirth believes the current crude oil price declines will be short-lived.

And he’s not alone in expecting higher rates for the fuel. Analysts at UBS foresee crude oil prices topping $125-a-barrel this September.

WTI crude price chart

The price of oil has slid to under $100 a barrel, pulled down by concerns that a global economic slowdown will hit demand for crude.

However, “the tightness in supply hasn’t gone away,” Wirth told the CNBC Evolve Global Summit this week. “I think it’s great for the economy that prices have moderated, but I also see the risks remaining skewed towards the upside.”

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Brent oil price chart

Crude oil prices “should rise as supply growth lags demand growth over the coming months,” according to UBS. “We see the price of Brent crude rising to $130 a barrel by September and trading around $125 through to the middle of 2023,” the investment bank said in a 6 July note to clients.

UBS analysts Mark Haefele, Giovanni Staunovo, Christopher Swann and Vincent Heaney attributed their bullish price prediction to three drivers,

  • Many OPEC+ oil producers continue to struggle to reach their production targets, and the (cartel’s) spare capacity to deal with future supply interruptions is dwindling. The group’s short-term available spare capacity to decline below two million barrels per day in August.
  • Disruption of oil from Russia could further restrict global supply. More broadly, Europe’s decision to scale back imports of Russian energy looks likely to keep the oil market tight.
  • China appears to be transitioning toward a less disruptive policy on Covid-19, reducing the likely drop in energy demand. UBS retains a positive view on the outlook for the Chinese economy, which is bucking the global trend of elevated inflation and slowing growth.

Uncertainties loom

"Rarely has the outlook for oil markets been more uncertain,” said the International Energy Agency in its latest Oil Market Report, very popular with traders.  

Silver

22.39 Price
-3.300% 1D Chg, %
Long position overnight fee -0.0203%
Short position overnight fee 0.0075%
Overnight fee time 22:00 (UTC)
Spread 0.020

Natural Gas

5.58 Price
-10.150% 1D Chg, %
Long position overnight fee 0.0390%
Short position overnight fee -0.0628%
Overnight fee time 22:00 (UTC)
Spread 0.005

Gold

1,772.46 Price
-1.410% 1D Chg, %
Long position overnight fee -0.0190%
Short position overnight fee 0.0074%
Overnight fee time 22:00 (UTC)
Spread 0.18

Oil - Brent

83.44 Price
-3.070% 1D Chg, %
Long position overnight fee 0.0025%
Short position overnight fee -0.0175%
Overnight fee time 22:00 (UTC)
Spread 0.04

“A worsening macroeconomic outlook and fears of recession are weighing on market sentiment, while there are ongoing risks on the supply side. For now, weaker-than-expected oil demand growth in advanced economies and resilient Russian supply has loosened headline balances,” the energy watchdog added.

Benchmark crude oil futures tumbled by more than $20/bbl in June as a weakening economic outlook fuelled a broad market sell-off.

Earlier in June, the World Bank (WB) slashed its global GDP growth forecast for 2022. “Compounding the damage from the Covid-19 pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy…" it said.

“Global growth is expected to slump from 5.7% in 2021 to 2.9% in 2022 — significantly lower than 4.1% that was anticipated in January.”

 

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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