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Market yet to see...end of the downside momentum

Short-term outlook for oil set to remain bleak

MANAMA, January 30, 2015

There will be further short-term weakness in the price of crude oil, UBS Wealth Management's latest research has revealed.

But it indicates that gains in the latter half of the year will take the price to between $67-72 per barrel by the end of the year, said a report in the Gulf Daily News (GDN), our sister publication.

The report, published ahead of UBS's Chief Investment Office (CIO) roadshow to the Middle East next month, suggests the market is yet to see the end of the downside momentum following a drop of between 12 to 15 per cent in the price of crude oil since the start of the year.

Investors are being urged to avoid direct exposure to oil, with the lack of supply adjustments from Opec keeping oil prices lower and providing backdrop for further price extremes over the next three months.

The report indicated that over the first half of the year, oil oversupply is expected to hit between 1-1.5 million barrels per day.

Although the oil market is rebalancing, as seen by the considerable curtailments in capital spending, there will be a lag in the impact on supply.

“The outlook for oil in the first half this year remains negative, amid the lack of immediate supply adjustments in an oversupplied market,” UBS Wealth Management's Global chief investment officer Mark Haefele said.

“That said, with non-Opec supply growth decelerating and demand for oil improving in the second half, we expect oil prices to rise and trade around the $70 per barrel mark as we head in to 2016.”

The report suggests there is a 25pc probability that Brent and West Texas crude oil prices could stay below $40 per barrel over the next six months.

The bank's 12-month forecasts, which still signal a recovery in crude oil prices, are lower than previous estimates, at $72 per barrel and $67 per barrel respectively for Brent and West Texas crude.

Haefele said a central theme of the CIO Year Ahead investment outlook was the risk inherent in an increasingly diverging world, and that risk included oil.

“We also urged caution for a number of other reasons including the return of geopolitical tension, misalignment in central bank strategies and uneven global GDP growth to name a few.

“However, a diverging world also brings opportunities.

“We see the magnitude and frequency of turbulent market events likely to rise this year, but with global growth still apparent overall, our base case is still one of positive overall financial asset returns,” he added.

According to the 2014 Wealth-X and UBS World Ultra Wealth Report, the Middle East saw the fastest growth in terms of both the ultra-high net worth (UHNW) population and wealth last year, for the second year in a row.

The region's UHNW population swelled to 5,975 individuals with a combined net worth of almost $1 trillion, a 12.7 per cent and 13.1 per cent increase since 2013, respectively. - TradeArabia News Service




Tags: Oil | Outlook | UBS | Crude | Report | gain |

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