Morgan Stanley just raised its outlook for oil prices on the back of a “triple deficit” for the commodity.
The bank said it now sees Brent crude oil jumping to $100 per barrel by the third quarter of this year.
Brent crude dropped as much as 0.78% to $87.69 or barrel as of noon ET on Friday.
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Morgan Stanley on Friday raised its outlook for oil prices on the back of a “triple deficit” for the commodity — low inventories, low spare capacity, and low investment.
A note from the bank’s commodities strategist and head of European oils, Martijn Rats, said it now sees Brent crude, oil’s international benchmark, jumping to $100 per barrel by the third quarter of this year, updating its $90 per barrel forecast published on January 6.
Brent crude dropped as much as 0.78% to $87.69 per barrel as of 12 p.m. ET Friday. West Texas Intermediate crude was trading at $84.93 per barrel. Though prices have pulled back somewhat recently, they are still hovering near their highest levels since late 2014. Both Brent and WTI are headed for a fifth straight weekly gain.
Citing the same triple deficit as its reasoning, Morgan Stanley said the commodity will continue to experience price pressures on the expectation that stockpiles will further deplete towards the end of 2022 after an already weak 2021.
The bank also said the supply capacity will shrink to 2 million barrels a day in the middle of 2022 from the current 3.4 million — levels both much lower than the 6.5 million a year ago.
Lastly, the bank said the investments in the sector are expected to tumble by 30% towards the end of 2030 as green initiatives, such as the “Net Zero by 2050” initiated by the International Energy Agency, take off.
“When each of these three factors is ‘tight,’ then demand growth needs to slow down so the physical flow of oil can balance,” Rats said in the note. “The key oil products markets (gasoline, jet fuel, and gasoil/diesel) all show strong crack spreads, steep backwardation, and inventories that have fallen to low levels. None of this signals weakness.”
The forecast comes as the emergence of the Omicron coronavirus variant rocked the prices of global commodities.
For the year, Brent oil prices have gained more than 10% on indications that demand for the commodity hasn’t dropped in the face of the spread of the Omicron variant.
Earlier this week, Goldman Sachs said Brent prices could surpass $100 per barrel later this year as the market remains “in a surprisingly large deficit.” JPMorgan, meanwhile said on Friday that US-Russia tensions could send oil prices to $150 per barrel this quarter.
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