(02 October 2019 ) DAILY MARKET BRIEF 2：Brent crude prices under pressure

The September 14 aerial attacks on Saudi oil facilities Abqaiq and Khurais triggered a spike in oil prices, with Brent crude jumping to around USD 69 per barrel. Prices have declined in the weeks since the attacks, and fell further on Monday after a Saudi Aramco official said that production had now been restored to 9.9 million barrels per day (mbpd) of crude. US dollar strength and the quarter-end also contributed to yesterday's price decline, in CIO's view.

As of Tuesday morning, Brent was trading around USD 60 per barrel; approximately equivalent to pre-attack levels. "Despite increased tensions in the Middle East, Brent prices fell about 9% in the third quarter of 2019, due partly to elevated global economic growth concerns," CIO notes. "Looking ahead, the risk of renewed attacks on Middle East energy infrastructure amid very low spare capacity cannot be ruled out, and should keep a risk premium in oil prices in the near term."

Further ahead, however, CIO retains a bearish view on oil. In 2020, softer global economic growth is likely to weigh on oil demand. UBS economists forecast world GDP to grow just 3.0% next year, the smallest rise since the global financial crisis. Consequently, UBS CIO expects oil demand growth of 0.9mbpd for this year and next – coupled with solid non-OPEC supply growth driven by the US, Norway and Brazil.

With the oil market expected to move from undersupplied to oversupplied next year, CIO forecasts Brent prices to fall to USD 55 per barrel over the next six to 12 months.

"We expect oil prices to decline into the cost curve of short-cycle US shale production next year," says CIO analyst Giovanni Staunovo. "Risk to our forecasts may come from two sides. If trade tensions escalate further, oil demand growth may soften even more, requiring much lower prices. On the other hand, supply disruptions in the Middle East or a surprise production cut by OPEC and its allies may push oil prices higher than in our base case."

By UBS