Oil Price Forecast Update from Morgan Stanley - Dec 4
Posted: Fri Dec 04, 2020 6:46 pm
Martijn Rats, CFA – Morgan Stanley
December 4, 2020 8:09 PM GMT
Following OPEC's recent meeting, our supply/demand forecast looks slightly tighter than before. On top, the dollar has weakened more than expected in recent months. Combined, this lifts our 2H21 price forecast from $50 to $55/bbl.
Since our last revision in September, two things have changed. First, the US dollar has weakened by another 5% - more than expected. This impacts oil prices broadly 1-for-1. In isolation, it would have increased our 2H21 Brent forecast from $50 to $52.5. On top, the supply/demand balance for 2021 looks slightly tighter. We had previously forecast 0.5 mb/d undersupply next year. However, this partially reflected OPEC's previous agreement, which included a 2 mb/d production increase in January. Following this week's decision to pursue a more tapered unwind, we now see the market ~0.9 mb/d undersupplied next year. This reduces OECD inventories by ~110 mb more than previously modelled, which we estimate is sufficient to drive the Brent forward curve slightly deeper into backwardation and add another $2-3/bbl to the spot price, lifting our 2H21 forecast to $55/bbl.Long-term forecast remains anchored by marginal cost; increased from $45 to $47.5: Our long-term forecasts are built on two expectations: first, that after global oil demand has recovered to pre-coronavirus levels, further growth over the medium term will be well below the trend rate of 1.2 mb/d year-on-year of past decades. And second, that OPEC will eventually pursue a part-recovery of the market share it has lost in recent years. This combination leaves little structural room for US shale to grow. Hence, our long-term forecasts remains anchored by the price that stabilises US shale. However, we lift our estimate for those break-evens by $2.5/bbl to reflect the dollar's weakness.
December 4, 2020 8:09 PM GMT
Following OPEC's recent meeting, our supply/demand forecast looks slightly tighter than before. On top, the dollar has weakened more than expected in recent months. Combined, this lifts our 2H21 price forecast from $50 to $55/bbl.
Since our last revision in September, two things have changed. First, the US dollar has weakened by another 5% - more than expected. This impacts oil prices broadly 1-for-1. In isolation, it would have increased our 2H21 Brent forecast from $50 to $52.5. On top, the supply/demand balance for 2021 looks slightly tighter. We had previously forecast 0.5 mb/d undersupply next year. However, this partially reflected OPEC's previous agreement, which included a 2 mb/d production increase in January. Following this week's decision to pursue a more tapered unwind, we now see the market ~0.9 mb/d undersupplied next year. This reduces OECD inventories by ~110 mb more than previously modelled, which we estimate is sufficient to drive the Brent forward curve slightly deeper into backwardation and add another $2-3/bbl to the spot price, lifting our 2H21 forecast to $55/bbl.Long-term forecast remains anchored by marginal cost; increased from $45 to $47.5: Our long-term forecasts are built on two expectations: first, that after global oil demand has recovered to pre-coronavirus levels, further growth over the medium term will be well below the trend rate of 1.2 mb/d year-on-year of past decades. And second, that OPEC will eventually pursue a part-recovery of the market share it has lost in recent years. This combination leaves little structural room for US shale to grow. Hence, our long-term forecasts remains anchored by the price that stabilises US shale. However, we lift our estimate for those break-evens by $2.5/bbl to reflect the dollar's weakness.