UBS: Oil Demand To Return To Pre-Covid Levels By Q1 2022

Crude oil demand will rebound to pre-pandemic levels by the first quarter of 2022, according to Wayne Gordon, executive director of commodities and forex at UBS Global Wealth Management.

Speaking to Bloomberg this week, Gordon said the outlook for oil was quite bright even though, he added, we could see more production soon once OPEC settled their internal differences. The analyst noted the latest drawdown in U.S. crude oil—and fuel—inventories reported yesterday, which signaled strengthening demand.

Barring another flare-up in Covid-19 infections as the latest variant of the coronavirus gains growing attention, oil demand could be back to its level from before the pandemic early next year.

UBS’s Gordon is far from alone in his bullish view of oil. Bankers are bullish, too. Goldman, for one, has stuck to its price forecast of $80 per barrel of Brent in the third quarter, citing the fast rebound in demand. JP Morgan agrees, seeing Brent topping $80 in the current quarter.

Bank of America goes further: its analysts believe Brent crude could reach $100 per barrel but not this year. They see this price for the middle of 2022, meaning BofA analysts expect supply to remain tight.

Meanwhile, global inventories are falling while non-OPEC supply is not rising as fast as it would have under other circumstances. This is particularly true of U.S. supply. In previous cycles, U.S. producers were quick to start ramping up production but now they have switch to a wait-and-see mode. This provides additional fuel for prices.

Nothing is set in stone, however, and the price rally could be halted even with demand still on the rise.

The rally “would only come to an abrupt end if central banks start increasing interest rates unexpectedly because of fear of inflation or in case OPEC raises production above demand — or they fail to accommodate extra Iranian barrels if the Persian Gulf OPEC member comes back to the market,” PVM Oil Associates analyst Tamas Varga told CNBC last week.