Brent oil: Three reasons to see a rise to $80 by end-September - UBS

FXStreet notes that Brent crude oil traded 2.4% lower after OPEC+ ministers agreed over the weekend to lift supply by 400,000 barrels a day each month from August 2021 through April 2022. WTI and Brent are now down around 7% each from their respective mid-July peaks, with Delta variant concerns weighing on overall risk sentiment. Despite the weekend agreement to raise supply, strategists at UBS remain positive on oil. 

“The relatively muted reaction in oil markets to the supply agreement suggests the addition of two million bpd to global oil supply by the end of the year was in line with market expectations. And with the deal settled, investors now have greater clarity regarding oil supply over the near-to-medium term. The attention of investors should now pivot back toward the economic reopening.”

“Preliminary data suggests a rise in oil demand, particularly in the US and Europe. A wave of pent-up demand for holiday travel, recreation, and business activities should further boost oil demand over the coming weeks. Global oil demand is now likely above 97mbpd, in our view, up from a low of 78mbpd in April 2020. We still anticipate global demand will exceed 99mbpd this year.”

“The OPEC+ group holds its next meeting on 1 September. If the Delta variant’s spread leads to new mobility restrictions, lowering oil demand, OPEC+ could pause or even reverse its decision to increase oil supply. Also, some countries may not be able to raise production every month given the decline in their production capacity.”

“A renewed rally in oil would also benefit commodity currencies (including the Canadian dollar, Russian ruble, and Norwegian krone) and energy equities. The energy sector is trading at attractive valuations and is also expected to step up buybacks and increase dividend payments.”