Brent oil may touch $30, commodities may fall 10%: UBS

Brent oil may decline to near $30 a barrel before a reduction in US output helps rebalance global markets in the second half of the year, says UBS Group.

Commodity prices may drop another 10% because of oversupplied markets, said Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at UBS’s wealth-management unit in Hong Kong.

Oil’s advance on Monday after Saudi Arabia cut ties with Iran could last a week or two, he said.

“What we are going to see in the first half of 2016 is that US production, year-on-year, will start to decline,” Schnider said. “Once you see that happening, the market will become more comfortable, the prices actually can stabilise.”

Brent lost 35% in 2015, declining for a third year. Prices on Monday rose 2.4% at $38.17 a barrel in Tokyo as Saudi Arabia cut ties with Iran a day after its embassy in Tehran was attacked to protest the Saudis’ execution of a prominent Shiite cleric.

The global oversupply worsened last year as US stockpiles rose more than 100 million barrels, the largest annual growth in Energy Information Administration data going back to 1920, and the OPEC had abandoned output limits to defend market share.

Global oil markets will begin rebalancing this year and there should be at least an 18-month bull market starting in the second half, according to analysts at Sanford C Bernstein & Co.

Oil will average $50 this year and $70 in 2017, which will be a year of “undersupply,” analysts wrote in a note.

Demand will grow while output declines accelerate from producers outside the OPEC including the United States (US), pushing oil up to $80 a barrel by 2018, the analysts have mentioned in the note.