Morgan Stanley has just raised its outlook for oil prices to $100 a barrel by the third quarter. Here’s why.

  • Morgan Stanley has just raised its outlook for oil price on the back of a “triple deficit” for the commodity.
  • The bank said she sees now Brent crude oil jumping to $100 a barrel by the third quarter of this year.
  • Brent crude fell 0.78% to $87.69 or a barrel as of noon ET on Friday.

Morgan Stanley raised its outlook for oil prices on Friday due to a “triple shortfall” for the commodity – low inventories, low spare capacity and weak investment.

A note from the bank’s commodities strategist and head of European oils, Martijn Rats, said she now sees Brent crude, the international oil benchmark, surging to $100 a barrel by the third quarter of this year, updating its forecast of $90 a barrel released on January 6. .

Brent crude fell 0.78% to $87.69 a barrel as of 12 p.m. ET on Friday. West Texas Intermediate crude was trading at $84.93 a barrel. Although prices have pulled back somewhat recently, they are still near their highest levels since late 2014. Brent and WTI are both heading for a fifth consecutive weekly gain.

Citing the same triple deficit as its reasoning, Morgan Stanley said the commodity will continue to come under price pressure on hopes that inventories will deplete further towards the end of 2022 after an already weak 2021.

The bank also said supply capacity would shrink to 2 million barrels a day by mid-2022 from 3.4 million currently – levels well below the 6.5 million a year ago.

Finally, the bank said investment in the sector is expected to fall 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,’ demand growth must slow for the physical flow of oil to balance out,” Rats said in the note. “The main petroleum products markets (gasoline, jet fuel and gasoil/diesel) are all showing strong crack propagation, significant offset and inventories that have fallen to low levels. None of this signals weakness.”

The forecast comes as the emergence of the Omicron variant of the coronavirus has rattled global commodity prices.

For the year, Brent oil prices gained more than 10% on indications that demand for the commodity did not decline in the face of the spread of the Omicron variant.

Earlier this week, Goldman Sachs said Brent prices could top $100 a barrel later this year as the market remains “in a surprisingly large deficit.” JPMorgan, meanwhile, said on Friday that U.S.-Russian tensions could push oil prices up to $150 a barrel this quarter.

Steve R. Hansen