Don't join downside bets on oil prices as OPEC+ unlikely to flood market: UBS

Investing.com -- Oil prices have been reeling from fears of oversupply after OPEC+ decided to extend output cuts, but gradually increase supply, but UBS is pushing back against oversupply fears and believes now isn't the time to be joining in on downside bets on oil as OPEC+ isn't likely to flood the market and demand is set to rise over the summer months.

"With demand seasonally rising over the summer, we expect global oil inventories to fall and prices to rise as  a result. Hence, we reiterate our recommendation for risk-seeking investors to sell the downside price risks in crude oil," UBS said in a note.

Earlier this week, OPEC+ extended its production cuts of 1.66 million barrels per day, or mbpd, which were set to end in 2024, until the end of 2025, and also committed to keep its additional 2.2mbpd voluntary production cuts in place for further three months to September, after which these cuts would be phased out. 

The upbeat call from UBS followed a rocky start to June for oil prices as traders weigh up the a more bearish outlook for oil prices on concerns that the decision from OPEC+ to phase out cuts will likely lead to wave of new barrels hitting the market. 

But UBS isn't so sure. "We disagree with that point," the bank said, noting that OPEC+ will tailor its production to unveiling demand landscape in the months ahead. 

"The group still has flexibility and would likely only produce more if it believes those extra barrels will be absorbed by the market (from October at the earliest)," UBS added, maintaining its "modestly positive outlook for crude prices."

On the demand side, UBS painted are less somber picture about demand, estimating demand to see a seasonally pic up over the summer, pushing global oil inventories expected to fall and leading to a rise in prices.