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Morgan Stanley warns of growing risk to its 2018 outlook for oil
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Loading...Following last week’s selloff in oil prices, Morgan Stanley has started to question its forecast for a balanced oil market in 2018.
“Our base case expectations for 2018 is for a balanced market with stable prices around end-2017 levels,” Martijn Rats, equity analyst at Morgan Stanley, wrote in a note dated Monday. “Yet the risks to that outlook are becoming skewed to the downside.”
Last week, front-month futures prices for West Texas Intermediate crude (XNYM:CLM7) fell by more than 6% and Brent crude (IFEU:LCON7) lost nearly 6%, with both benchmarks settling Friday at their lowest levels since November.
The declines for oil prices come on the heels of data that point to further increases in U.S. crude production.
The number of U.S. rigs actively drilling for oil has made its “strongest recovery of the last 30 years,” Rats said.
In addition, Rats said while Morgan Stanley expects the current agreement to curb output led by the Organization of the Petroleum Exporting Countries agreement to curb output to be extended when the group meets later this month, it also believes the pact is “unlikely ” to be extended again by December.
If the production agreement ends late this year, OPEC’s cut of about 1.2 million barrels a day, as well as Russia’s cut of about 300,000 barrels a day, could be reversed next year, he said
That means the market could see 2.5 million barrels a day of extra supply come back into the market, he said.
Source: Bloomberg
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