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Analysts cut oil forecasts over recession fears, China lockdowns

Analysts cut oil forecasts over recession fears, China lockdowns

Oil analysts have reportedly slashed their price forecasts for the remainder of the year amid growing fears of recession across major global economies, and China’s continuing lockdowns under its zero-Covid policy.

Swiss investment bank, UBS Group, and American investment bank, Morgan Stanley, have cut their near-term forecasts for crude oil by almost $15 a barrel, as Russian oil is being exported to Asia and other places.

Since its peak in early March, around the time Russia invaded Ukraine, brent crude has dropped by almost one-third and is expected to drop further in the coming months. However, it may also rebound in 2023 with economies making recoveries and Russian crude becoming scarce in the market.

Morgan Stanley analysts stated that it has lowered its near-term projection for Brent given the inflation and sharp slowdown in demand, having slashed its price outlook for Q3 by $12 a barrel, now at $98, as well as its Q4 estimate by $5 a barrel, to $95.

However, the bank maintained its quarterly projections for the next year at $100 and above, expecting a firmer market from Q2 onwards.

The projection is further supported by estimates that Russian oil exports are expected to fall materially from 1.5 million to 2 million barrels daily at the beginning of 2023.

UBS analysts noted that it cut down its year-end forecast for Brent by $15 a barrel, coming at $110, on the back of lockdowns in China and high Russian exports.

The restrictions in China will also lead to a sluggish near-term demand recovery even amid increasing crude imports last month. Russian exports have remained more robust than expected as high crude volumes go into EU nations such as Italy.

The Swiss analyst expects a recovery of Brent crude to reach $125 a barrel by September-end next year amid market tightening as strategic reserve sales finish and demand for oil products for generating electricity increases.

Meanwhile, American investment bank Goldman Sachs expects Brent to increase for its 2023 forecast, coming at $125 a barrel, in case of agreement of a price cap on Russian oil exports, according to its analysts.

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