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Oil Balancing May Take Longer Than Previously Anticipated, Morgan Stanley

Oil Rig

Morgan Stanley’s recent prediction placing the end of the oil market supply glut around mid-2017 is losing backing from its central proponent.

The firm’s head of energy research, Adam Longson, said on Friday that market volatility over the past two years has led many previous forecasts to be incorrect.

"We are not yet changing our forecast for a mid-2017 rebalancing, but our conviction level is falling," Longson wrote in a statement on Friday, according to Business Insider. "An oil recovery has been 6-12 months away in the minds of investors since late 2014, but "unforeseen" events have led to consistent delays. Once again, we see an increasing probability for several bearish developments to come together, which could push off rebalancing (seasonally-adjusted demand exceeding supply) to late 2017 or 2018."

This Friday’s Baker Hughes report marked 11 straight weeks of no-decline in the U.S. oil rig count, meaning domestic production is on the rise, and while the rising count may not immediately affect prices, it could signal a sustained oil glut in the coming weeks.

"The U.S. continues to surprise, and the market seems to be underestimating the impact of some rigs that have already been added," Longson noted, adding that a majority of the new rigs have begun work in areas where high-quality crude is cheaply available – especially the Permian Basin.

Longson has been known to be a bearish analyst, more likely to predict price slides than hope for redeeming spikes. This time last month, Longson predicted that oil prices would decrease to $35 within the next one to three months because "very little has been addressed fundamentally to correct” the excess supply problem that led the market price to the current dead end.

By Zainab Calcuttawala for Oilprice.com

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  • Greg Foreman on September 12 2016 said:
    What this article, along with other articles, fail to factor in is the 4,000 plus drilled but no completed wells, DUC’s, in the US waiting to be fracked. The
    DUC’s are rarely factored into analysis and discussion of US future oil capacity. Which is somewhat ironic in as much as they represent the greatest threat to stabilization of the oil market. Especially, when one realizes 2/3’s of the DUC’s are in formations that are the least expensive to produce, Permian and Eagle Ford basins. The DUC’s are analogous to the “sword of Damocles” hanging over US oil production.

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