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EFTA01089574 | EFTA01089611 1 Energy Preference: neutral Brent (20 Feb): USD 115/bbl (last month: USD 111/bbl) UBS View (crude oil) Brent six-month target: USD 110/bbl • Brent and WTI prices rose to their highest level since May and September 2012 respectively due to a combination of improving macroeconomic data, rising geopolitical tensions in the Middle East/North Africa (MENA) and reduced oil supply from OPEC-12 (-0.6 to -1.0mbp in Jan13 vs. Nov12). Furthermore, speculative net-long positioning at NYMEX and ICE skyrocketed to record highs above 500mb. The crowded positioning holds the key for a firm price reversal, should the current positive sentiment turn. • US petroleum oil demand declined by 2.5% y/y to 18.6mpbd in November 2012. Preliminary data for January showed further weakening to around 18.3mbpd. Despite improvements in US economic leading indicators, we expect US oil demand to remain largely stable, declining moderately by 0.lmbpd y/y in 1H13, and rising by 0.lmbpd y/y in 2H13. • In China, tax changes should have incentivized higher refinery runs in 4Q12. This coupled with an ongoing inventory build-up suggests that actual end user demand might not be as strong as production data would suggest. • We therefore expect global oil demand of only around 0.8 mbpd y/y in 1Q13. Further, the crude oil supply picture outside OPEC looks promising as well. In 2Q13 we expect crude oil production to increase by 1.1 mbpd y/y or more, thereby reducing the need for OPEC oil supply marginally. Thus, we stick to our negative price bias in the absent of a further escalation in the MENA region and target a price drop to USD 105/bbl for Brent in 1Q13. 21 Positive scenario Brent six-month target: USD 140-185/bbl • Iranian oil exports are subject to a complete embargo, draining another 0.75-1 mbpd out of global crude oil supply. Alternatively, a military confrontation affecting the supply of crude oil via the Strait of Hormuz would be the ultimate supply shock and require crude oil to be rationed on a large scale. II Negative scenario Brent six-month target: USD 75-80/bbl • Economic activity in the Eurozone does not stabilize and raises break up concerns, which would lead to meaningful weaknesses in global trade and crude oil consumption. A restoration of Iranian exports and a sharp increase in US tight oil production would push oil inventories up firmly and weaken Brent prices towards USD 80/bbl. What we're watching Why it matters Middle Eastern tensions trans' nuclear amoitions coula escalate aver tne ultimatum trom tne In ana Israel expires in 1Q13 with no visible changes. Further implemented US sanctions on Iran could reduce Iran's exports in the next months. We also track the crude oil flows in MENA countries. Supply Demand Oil market reports UBS Non-OPEC supply should rise driven by higher US and Canadian oil supply in 2013. Saudi production levels are likely to stabilize at levels slightly above 9mbpd, keeping OPEC production above the "call on OPEC in 1H13. One-off factors have supported Chinese crude oil demand in 4Q12, likely to weigh on demand in 1Q13. Improving economic indicators should support demand from 2Q13 onwards. Key dates: 12 Mar, EIA Short-term energy outlook; 13 Mar, IEA Oil market report Recommendations Tactical (six months) • With OPEC in a good position to balance the oil market and demand likely to pick up at the end of 1H13 and into 2H13, price setbacks in 1Q13 should be used to build up some longs at or below USD 105/bbl for Brent. Stronger oil consumption than envisaged by markets in the latter part of 2013 makes the oil market more vulnerable to geopolitical concerns as OPEC needs to step up crude oil production. Strategic (3-5 years) To satisfy emerging market demand in the long run, long dated crude oil prices around USD 90-95/bbl are unlikely to secure the needed investments to keep supply growing. This gives strategically oriented crude oil investors the opportunity to build up some long-term crude oil exposure over the next three to five years. Financial investors are heavily positioned Values in mn barrels 600 500 400 300 200 100 0 (100) (200) Jan 93 Jan-96 lan-99 lan-02 lan-05 lan-08 lan-11 • ICE Brent (Swap Dealers and Managed Money) • Spec. Accounts: Options ESI:ec. Accounts: Futures Source: Bloomberg, UBS, as of February 2013 Note: Past performance is not an indication of future returns. 37 For further information please contact CIO asset class specialists Dominic Schnider, or Giovanni Staunovo, Please see important disclaimer and disclosures at the end of the document. EFTA01089611
May 9, 2026 at 2:49 AM