Oil Price Forecast by Morgan Stanley - May 10
Posted: Sat May 11, 2019 12:53 pm
Martijn Rats, CFA – Morgan Stanley < Martijn is MS's expert on the global oil markets.
May 10, 2019 5:36 PM GMT
A wrap-up of what's driven oil markets this week
"Brent has been fluctuating around $70 this week but this appeared to be a combined effect of two powerful offsetting forces. On the one hand, prices have been weighed down by concerns on the US/China trade negotiations, which so far have not yielded the positive outcome that many had expected. This has fueled concerns about global trade and economic growth, and hence oil demand. On the other hand, geopolitical tensions in Iran and Venezuela have continued to flare up, supporting oil prices. In particular, the US government imposed new sanctions on Iran, targeting the industrial metals sector, and special representative Brian Hook confirmed again that no sanction waivers will be granted to importers of Iranian oil.The tension between bullish and bearish forces can also be seen in Brent time spreads that continue to trade strongly, reflecting the current tight physical market. If time spreads are a guide to fundamentals, Brent spot prices should arguably be above $80/bbl.
However, oil equities have sold off quite sharply recently, both in absolute terms as well as relative to the market. Oil equities are trading as if Brent has already fallen into the $60-65/bbl range.
We tend to take our cue from the physical market. Over the next few months, demand will strengthen seasonally while supply in Iran, Venezuela and possibly Libya will likely trend lower and US production growth is going through a slow patch. Despite some demand worries, we see inventories drawing over the summer, which should keep time spreads supported. In that scenario, our call is still for Brent to trade in a range of $75-80/bbl in 2H."
Despite solid Q1 results from all 16 companies our Sweet 16 had a roller-coaster week, but it did finish the week up ~2%. - Dan
May 10, 2019 5:36 PM GMT
A wrap-up of what's driven oil markets this week
"Brent has been fluctuating around $70 this week but this appeared to be a combined effect of two powerful offsetting forces. On the one hand, prices have been weighed down by concerns on the US/China trade negotiations, which so far have not yielded the positive outcome that many had expected. This has fueled concerns about global trade and economic growth, and hence oil demand. On the other hand, geopolitical tensions in Iran and Venezuela have continued to flare up, supporting oil prices. In particular, the US government imposed new sanctions on Iran, targeting the industrial metals sector, and special representative Brian Hook confirmed again that no sanction waivers will be granted to importers of Iranian oil.The tension between bullish and bearish forces can also be seen in Brent time spreads that continue to trade strongly, reflecting the current tight physical market. If time spreads are a guide to fundamentals, Brent spot prices should arguably be above $80/bbl.
However, oil equities have sold off quite sharply recently, both in absolute terms as well as relative to the market. Oil equities are trading as if Brent has already fallen into the $60-65/bbl range.
We tend to take our cue from the physical market. Over the next few months, demand will strengthen seasonally while supply in Iran, Venezuela and possibly Libya will likely trend lower and US production growth is going through a slow patch. Despite some demand worries, we see inventories drawing over the summer, which should keep time spreads supported. In that scenario, our call is still for Brent to trade in a range of $75-80/bbl in 2H."
Despite solid Q1 results from all 16 companies our Sweet 16 had a roller-coaster week, but it did finish the week up ~2%. - Dan