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Morgan Stanley Jumps On The $100 Oil Bandwagon

Morgan Stanley expects oil prices to hit $100 per barrel in the second half of the year, becoming the latest major Wall Street bank to expect triple-digit oil prices by the end of 2022.

The oil market is headed to a “triple deficit” of low inventories, low spare production capacity, and low investment, Morgan Stanley said in a note carried by Reuters.

The bank now expects oil at $100 in the third and fourth quarters of this year, lifting its previous Q3 and Q4 forecasts from $90 and $87.50 a barrel, respectively.

“The key oil products markets (gasoline, jet fuel, and gasoil/diesel) all show strong crack spreads, steep backwardation, and inventories that have fallen to low levels. None of this signals weakness,” Morgan Stanley analysts wrote in the note.

The bank is the latest investment institution to predict that oil is headed to triple-digit territory as soon as this year, amid resilient demand, falling inventories, and declining spare capacity at OPEC+ as the group ramps up production.

Triple-digit oil “is in the works” for the second quarter this year, Francisco Blanch, head of global commodities at Bank of America, told Bloomberg last week. Demand is recovering meaningfully, while OPEC+ supply will start leveling off within the next two months, Blanch said, noting that it will be only Saudi Arabia and the UAE that can produce incremental barrels to add to the market.

Related: How Realistic Are Libya’s 2022 Oil Production Goals?

Oil prices could hit $100 this year and rise to $105 per barrel in 2023, on the back of a “surprisingly large deficit” due to the milder and potentially briefer impact of Omicron on oil demand, Goldman Sachs said this week. Due to gas-to-oil substitution, supply disappointments, and stronger-than-expected demand in Q4 2021, OECD inventories are set to dip by the summer to their lowest levels since 2000, Goldman’s analysts note. Moreover, OPEC+ spare capacity is also set to decline to historically low levels of around 1.2 million bpd.

“At $85/bbl, the market would remain at such critical levels, insufficient buffers relative to demand and supply volatilities, through 2023,” Goldman -Sachs said in a note.

JP Morgan, for its part, expects the falling spare capacity at OPEC+ to increase the risk premium in prices, and sees oil hitting $125 a barrel this year and $150 a barrel next year.

By Tsvetana Paraskova for Oilprice.com

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  • steve Clark on January 21 2022 said:
    It is almost unavoidable that price will go up a lot from here.

    Demand is still going up for the next decade based on some very solid calculation. and no investment into new wells spell trouble unless you are invested in current oil production/reserves

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