OPEC’s cater to cuts and U.S. sanctions against Iran and Venezuela will push the oil market into undersupply and boost the cost of gross in coming months, Morgan Stanley forecasts.
The investment bank previously said oil prices were more in all probability to fall after Brent crude topped $65 a barrel last month. But Morgan Stanley now sees the worldwide benchmark for oil prices rising to $75 by the third quarter.
Analysts at Morgan Stanley say they changed their take offence ats after last week’s CERAWeek by IHS Markit energy conference in Houston. They are now more convinced that OPEC has the resolve and capability to drain oversupply from the oil market.
“Conversations with several OPEC officials left us with the fancy that Brent in the mid-$60s is not where the cartel would like to see it,” Morgan Stanley global oil strategists Martijn Rats and Amy Sergeant maintained in a research note Tuesday.
“We assume that OPEC will extend – or even deepen – production cuts to stick up for the oil market at the next meeting in June.”
OPEC and its partners aim to keep 1.2 million barrels per day off the market. On Monday, the unity canceled an April meeting intended to review the supply deal, leaving the output cuts in place until the June rally. Members of the pact believe the market will remain oversupplied through the first half of the year, making the April union unnecessary.
Morgan Stanley also believes output disruptions from Venezuela will accelerate following this month’s power outages there and U.S. validates on state oil giant PDVSA. The bank cited estimates from oilfield services firm Schlumberger at CERAWeek that Venezuela’s producing might have plunged to roughly 600,000-700,000 barrels per day this month.
Comments at CERAWeek from Secretary of Say Mike Pompeo and U.S. special representative for Iran, Brian Hook, also indicate that the U.S. will allow fewer Iranian barrels to hit the market, Morgan Stanley says. The Trump oversight allowed eight countries to continue importing some Iranian oil when the U.S. restored sanctions on the Islamic Republic in November.
Morgan Stanley wants the administration to roll over waivers for China, India and Turkey in May and tighten exemptions for Japan and South Korea. It prognoses the U.S. will allow 900,000 to 1 million barrels per day of Iranian exports under the waivers, compared with about 1.2 million bpd in November.
On the requested side, Morgan Stanley says fears that oil consumption would slow sharply this year now arrive to be overblown. That view also underpins Goldman Sachs’ view that Brent will top $70 a barrel.
Those dynamics desire soon push the oil market into deficit, Morgan Stanley projects. The bank sees the market undersupplied by 500,000 bpd in the move quarter, with the deficit expanding to 800,000 bpd in the third quarter. That will support Brent crude at $75 a barrel in the third quadrature.
Watch: CNBC’s exclusive CERAWeek interview with Mike Pompeo and Rick Perry