UBS Group analysts stated in their report on Monday that despite geopolitical risks, the fundamental outlook of the crude oil market remains bearish.

Although the ongoing conflicts in the Middle East initially raised concerns about possible disruptions in oil supply, the direct risk has since decreased. The easing geopolitical tensions, coupled with weak global demand, are keeping the overall outlook for oil prices on a downward trend.

UBS Group analysts said: "We continue to expect the oil market to remain almost balanced by 2025, provided that OPEC+ production cuts do not end."

One of the main factors leading to the bearish outlook for oil prices is that the demand from the world's largest oil consumer may fall short of expectations. UBS has revised down its 2024 global oil demand growth forecast by 0.1 million barrels per day to 0.9 million barrels per day.

The Chinese government has introduced stimulus measures aimed at promoting economic growth, but the structural shift in fuel consumption, including the increasing adoption of electric vehicles, is expected to limit the impact of this plan on oil demand.

For 2025, UBS predicts a slight improvement in oil demand, expected to grow by 1.1 million barrels per day. On the supply side, the outlook remains mixed. The bank expects non-OPEC+ countries to maintain strong production levels, especially the USA.

However, due to stagnating drilling activity, the US oil production is facing resistance, with no significant growth seen in recent months.

UBS Group has lowered its forecast for US crude oil production, citing a decrease in rigs and drilling activity, and expects further slowdown in US crude oil production growth by only 0.4 million barrels per day by 2025, below previous forecasts. This marks a continuation of the bearish trend seen in the past few months.

There has also been a downward revision in the forecast for OPEC+ crude oil production. UBS also points out that compliance with production targets by the organization's main member countries remains uneven. For example, while Iraq implemented production cuts in September, its output still exceeded the agreed target level.

UBS expects that OPEC+ spare capacity will not return to the market at least until 2027, as weak demand and non-OPEC+ supply growth will continue to offset any potential supply increase.

Oil prices rebounded on Monday after falling over 7% the previous week. China lowered its benchmark lending rate as scheduled on Monday, as part of broader stimulus measures aimed at reviving the economy. The CEO of Saudi Aramco stated at an energy conference in Singapore on Monday that he still remains quite bullish on China's oil demand, due to increased policy support for growth and the growing demand for jet fuel and liquefied oil.

UBS analyst Giovanni Staunovo stated, "Geopolitical tensions in the Middle East and positive comments on oil demand by the CEO of Saudi Aramco could support oil prices."

Meanwhile, two sources told Reuters that US President Biden's envoy, Amos Hochstein, will hold talks on Monday in Beirut with Lebanese officials on the conditions for a ceasefire between Israel and Hezbollah.