Oil price outlook positive even as US set to release more crude from reserves, UBS says

The outlook for crude prices over the next 12 months remains positive, even as the US plans to release more oil from its Strategic Petroleum Reserve (SPR).

In a research note on Wednesday, UBS said further releases from the SPR would not fix any structural imbalance caused by years of underinvestment and the world’s “ever-rising thirst for oil”.

US President Joe Biden will announce on Wednesday that he is putting 15 million barrels on the market, the final tranche of oil from a programme announced early this year to release 180 million barrels of crude from the SPR.

Washington may consider more releases in the coming winter months if energy prices surge.

The Swiss lender, which does not expect further “large” sales from the emergency reserve, said oil markets would remain tight over the coming years due to chronic underinvestment in new projects and an increased focus on capital discipline in the US shale patch.

US shale producers, usually quick to raise output in response to oil price increases, have come under pressure from shareholders to boost returns and profitability.

“Higher prices are therefore needed to incentivise supply and slow demand growth,” UBS said. “However, the market is likely to be less tight than we initially expected for the next 12 months because of various headwinds.”

Brent crude gained around $14 after the Opec+ alliance of oil-producing countries decided to slash its collective output by 2 million barrels per day, the biggest output cut since the onset of the Covid-19 pandemic in 2020.

Prices have since come under pressure due to recession concerns, the war in Ukraine and the likelihood that China will extend its zero-Covid policy.

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