UBS lifts oil price forecasts, names BG Group as a key 'buy'

UBS has raised its oil price forecasts for this year and the next, saying that “the slow process of re-balancing the market continues”.

The bank has lifted its 2015 Brent forecast from $56.25/bbl to $61.50/bbl and its 2016 estimate from $67.50/bbl to $70/bbl.

UBS said the upgrade “reflect[ed] a somewhat higher price level base from 2Q15 (which we have marked to market) than previously anticipated”. It continued: “It remains very early days but there are clear signs of slowing non-OPEC investment which will impact supply-side growth, meanwhile lower crude prices do seem to have stimulated demand.”

Refining margins also proved to be strong than expected in the second quarter due to robust underlying demand.

On a less positive note, the bank has cut its forecasts for US natural gas due to lower estimates for the Henry Hub distribution hub in Louisiana.

“As the US becomes a major exporter of LNG, lower domestic prices may come to have a depressing effect on international spot and new contract pricing,” the broker said.

UBS named FTSE 100 constituent BG Group among its key ‘buy’ ratings in the sector, along with overseas peers Galp, Statoil and Eni. It said: “We continue to see value in a preference for the more upstream oriented names after the relative underperformance in 2H 2014, the prospect for self-help and our view on the trajectory of oil price recovery. “

BG Group was up 0.3% at 1,112.5p by 10:48.