UBS: Oil prices may drop below 60 in the short term, but are bullish in the long term.

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UBS believes that in the next 1-2 years, international oil prices will show a trend of “fall first, rise later.”

According to the news from Chasing Wind Trading Desk, UBS's latest global oil market analysis shows that in the short term, Brent crude oil prices face downward pressure and are expected to fluctuate in the range of $55-70 per barrel, and may even fall below $60 per barrel. However, from the second half of 2026 to 2027, as global spare capacity gradually tightens, oil prices are expected to receive strong support and gradually rebound, with prices projected to be $70-75 per barrel in 2027-2028.

UBS says that the decline in oil prices is mainly due to the dual impact of OPEC+ increasing production. UBS predicts supply surpluses of 1.2 million barrels/day in 2025 and 1.5 million barrels/day in 2026, higher than the previous forecast of 1.1 million barrels/day. This is mainly driven by OPEC+ capacity increases, with expected increases of 1.1 million barrels/day and 0.8 million barrels/day in 2025 and 2026, respectively.

The imbalance between oil market supply and demand will peak in the first half of 2026 and then gradually improve. After the supply surplus reaches a peak of 2.3 million barrels/day, it will fall to about 1 million barrels/day in the second half of 2026. It is noteworthy that potential demand upgrades (up to more than 0.5 million barrels/day) could significantly narrow the surplus in the second half of 2026, providing support for oil prices.

UBS reminds energy sector investors to prepare for short-term volatility, as oil-related companies are facing 1-2 years of profit pressure, but a turning point is expected after the second half of 2026. The outlook for global inflation may see phase changes due to diverging oil price trends.

Supply-demand Imbalance Pressures Short-term Prices

UBS forecasts a global oil market supply surplus of 1.2 million barrels/day in 2025, expanding to 1.5 million barrels/day in 2026. This supply-demand imbalance is mainly driven by continued increases in OPEC+ production. Although geopolitical risks, resilient demand, and China’s strategic reserves provide some support, seasonal weak demand and incremental supply from both OPEC+ and non-OPEC+ will continue to pressure oil prices.

UBS analysts believe that Brent crude is most likely to trade in the $55-$70 per barrel range in the near term. In the most pessimistic scenario, if OPEC+ continues rapid capacity increases and a global economic slowdown leads to a demand drop of about 0.5 million barrels/day, oil prices could even briefly fall below $50.

OPEC+ Production Increase Faces Implementation Challenges

OPEC+ has announced phase-in restoration of the 1.65 million barrels/day of voluntary production cuts, with the first two rounds of increases of 137,000 barrels/day each to be implemented in October-November. UBS expects the full withdrawal of production cuts to be completed by September 2026, but the actual increase may only reach 40% of the planned amount.

This expectation is based on capacity limits of multiple member countries and already high production levels. Currently, OPEC-9 countries (excluding the exempted ones) have 3.8 million barrels/day of spare capacity, with Saudi Arabia (2.4 million barrels/day) and the UAE (0.9 million barrels/day) together accounting for more than 85%. The reopening of the Iraq-Turkey pipeline will provide an additional 180,000-190,000 barrels/day to the market.

Non-OPEC+ supply growth in 2025 will remain strong at 1.2 million barrels/day, mainly thanks to new projects in Brazil, Norway, and Canada coming online and ramping up production. In Brazil, several major projects will contribute significant output, including Buzios 7 (220,000 barrels/day), Mero 4 (180,000 barrels/day), Bacalhau (220,000 barrels/day), among others.

In 2026, non-OPEC+ growth is expected to slow to 0.5 million barrels/day, with Latin America contributing 0.5 million barrels/day (Brazil 0.4 million barrels/day), while US production is expected to decline slightly by 70,000 barrels/day. The US shale industry is facing cost pressures, and the Dallas Fed Energy Survey shows US producers need an average oil price of $65/barrel to breakeven, higher than current projections and the 12-month forward curve.

Slowing Demand Growth Limits Upside Potential

UBS has slightly raised its forecast for global oil demand growth in 2025 by 20,000 barrels/day to 0.9 million barrels/day, but has lowered the 2026 forecast by 20,000 barrels/day to 1.1 million barrels/day. China’s demand is expected to increase by 0.1 million barrels/day in 2025 and 0.3 million barrels/day in 2026, but continued popularity of electric vehicles will continue to curb gasoline consumption.

On the non-OPEC+ supply side, growth in 2025 is expected at 1.2 million barrels/day, mainly from new projects in Brazil, Norway, and Canada. US shale oil production has stabilized since Q2 2025, and UBS forecasts that US liquid fuels production will decline slightly by 70,000 barrels/day in 2026. The average breakeven price for US producers is $65/barrel, higher than the current forward curve price, limiting incentives for production increases.

According to UBS analysis, downward pressure on oil prices in the short term is now a foregone conclusion, but improvements in medium- to long-term fundamentals and tightening spare capacity will begin to support price recovery from the second half of 2026. Investors should closely monitor the pace of OPEC+ production adjustments and potential shocks to supply from geopolitical developments.

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