UBS's Oil Outlook Is 'Depressed,' But Improving

In a new report, UBS analyst Jon Rigby updates the firm’s outlook for the global oil markets, including predictions for when the market will begin to recover. According to Rigby, the market is now on course to reach a balance by 2017.

He notes that the nearly 40 percent rally in WTI since the February bottom has been dramatic, but prices have only recovered to their December 2015 levels. The current price of around $36/bbl is almost exactly in-line with the firm’s Q1 forecast. UBS is calling for $41/bbl in Q2 and $55/bbl in 2017.

“The outlook for 2017 at $55/bbl may seem high but at some stage next year markets will need to incentivize and likely begin to fret about low spare capacity,” Rigby explains.

Related Link: Hedge Funds Now 'Strongly Bullish' On Oil

For now, Rigby believes that oil prices will remain depressed, but should steadily improve. In terms of timing the recovery, he says that the biggest wildcard is now global demand in a sluggish economic environment.

After being hammered the past two years, the recent recovery in WTI crude has it mostly flat on the year so far in 2016. The United States Oil Fund LP (ETF) USO is down 11.9 percent year-to-date, but the Energy Select Sector SPDR (ETF) XLE is up 2.7 percent on the year.

Disclosure: the author holds no position in the stocks mentioned.