Morgan Stanley Raises Oil Price Forecast

Morgan Stanley has raised its forecast for oil prices through 2020, saying the world is hungry for more U.S. shale crude at a time when it’s uncertain American drillers can deliver it.

The bank now sees international benchmark Brent crude fetching $62 a barrel in the final quarter of the year, up from an earlier estimate of $55. U.S. West Texas Intermediate crude is poised to average $56 for the quarter, up from Morgan Stanley’s prior $48 call.

By the second quarter of 2018, Morgan Stanley forecasts Brent will average $63 and WTI will trade at $58 a barrel.

Demand for oil is growing at a surprisingly high rate, leading to a rapid drop in U.S. crude inventories, Morgan Stanley says. At the same time, OPEC and other oil exporters including Russia are likely to extend a deal to keep 1.8 million barrels off the market through next year.

West Texas Intermediate graph

Outside of OPEC, there is little growth in oil supplies, with the exception of the United States, where drillers can quickly tap shale wells, the bank notes. But even in the U.S. Lower 48, the number of rigs operating in oilfields has been falling.

To balance the market, U.S. shale drillers will have to grow production from about 5.9 million barrels a day this year to 7 million barrels a day in 2018, more than previously thought, Morgan Stanley analysts conclude. That would require drillers to start standing up 8 to 10 new rigs each month, but the analysts are uncertain that will happen.

“Right when the world’s reliance on shale is growing, its limits are starting to become apparent, and there seem to be two aspects to this: ability and willingness,” they wrote in a research note on Monday.

Companies say bottlenecks are forming because they cannot book the crews and equipment needed to carry out hydraulic fracturing, the process of injecting water, minerals and chemicals underground to break up shale rock formations and allow oil and gas to flow to the wellhead. Costs for oilfield services are also rising.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza