UBS sees Brent near $110 by year-end on supply risks, high freight costs

What happened

UBS expects Brent crude to stay near $110 a barrel by the end of the year, citing volatile Middle Eastern supplies, falling global inventories and record freight costs, even as oil prices fell for a second day on Tuesday.

Confirmed

Global impact / market context

Higher oil prices raise fuel and shipping costs for companies, which can reduce profit per sale and squeeze household budgets. UBS also lifted its later forecasts, signalling it expects tight supply to keep oil expensive for years rather than months.

Analyst inference

Brent eased 0.5% to $115.25 a barrel but is still up 91% this year, while other crude dipped 0.4% to $101.38. Investors were waiting for company earnings and the Federal Reserve's interest-rate decision, so trading was cautious.

Analyst inference

What to watch

1. Watch whether pledged strategic oil reserve releases, which are largely completed, keep global inventories falling and support prices. Confirmed
2. Track record freight costs and limited tanker capacity, which UBS says could keep oil prices high by making shipped crude more expensive. Proposed
3. Watch Gulf production and Chinese import recovery, since UBS flags the pace of both as key uncertainties behind its price forecasts. Analyst inference

Evidence

• seekingalpha.com