FAB expects oil to trade between $50 and $70 in 2018

First Abu Dhabi Bank, the biggest bank by assets in the UAE, said that it expects the price of Brent crude to fluctuate between $50 a barrel and $70 in 2018 amid an increase in demand, especially from the fast-growing Asian emerging markets.

Oil markets will also continue to be supported by supply reductions by some of the world’s biggest producers, the bank said in a report on its investment outlook for 2018. FAB is forecasting an average $60 a barrel for Brent in 2018 versus an average of $54 a barrel in 2017.

“We believe that the market in general will remain supported by fundamentals, namely the ongoing recovery in demand which is finally having an impact on global crude stocks, supported in part by the Opec/ non-Opec output reduction agreement,” the bank said.

As a result of higher oil prices, the Arabian Gulf region is likely to get a boost in economic growth. The bank noted that as well as rising oil prices, the region is benefiting from increased efforts to diversify economies, especially in the UAE and Saudi Arabia where energy subsidies have been reduced and VAT implemented at the beginning of the year.

That may give a boost to equities, especially as they have been trading at cheap valuations amid lacklustre returns in recent years.

“We expect an improvement in regional economic growth on the back of increased governmental activity and reform,” the report said.

“Higher oil revenues could, along with the implementation of non-oil related revenue generators (such as VAT), allow increased government spending. While low valuation multiples reflect currently weak investor confidence, valuations provide the potential for re-ratings should conditions improve.”

Elsewhere, the bank remains bullish on global equities, despite the recent sell-off, as earnings improve along with the global economy.

Higher oil prices are likely to boost economic growth in the region, which is already benefiting from diversification efforts