Delta outbreak unlikely to derail oil rally this year, UBS says

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Investment bank UBS expects oil prices to resume their upward trend despite concerns over a surge in infections of the coronavirus Delta variant and projects Brent crude to trade between $75 and $80 per barrel in the second half of 2021.

Brent futures were down 0.6% at $69.99 a barrel on Thursday, while U.S. West Texas Intermediate (WTI) futures were trading around $67.84 a barrel. Both benchmarks fell by more than $2 a barrel on Wednesday.

“While regional differences remain significant in terms of reopening and the pace of vaccination, we believe the return to economic normalization will continue globally, lending support to oil prices in the months ahead,” the bank said in a note.

Coronavirus cases worldwide surpassed 200 million on Wednesday, according to a Reuters tally, as the Delta variant threatens areas with low vaccination rates.

UBS expects global oil demand to exceed 99 million barrels a day this year, driven by the pace of economic recovery.

“With the OPEC+ group firmly in control of supply, and maintaining its cautious stance, the crude market is likely to tighten further. We think ongoing declines in global oil inventories should see prices resume their upward trend,” it said.

Last month, the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, reached a compromise to increase oil supply from August to cool prices.

Oil prices have fallen more than 10% since scaling their highest level in more than two years in early-July.

“We continue to advise investors with a high risk tolerance to be long Brent, add exposure to longer-dated oil contracts, or sell its downside price risks,” analysts at UBS said. 

File photo EPA-EFE/CLEMENS BILAN

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