Brent Crude prices could reach $75 a barrel in the third quarter this year as the oil market will likely swing into a deficit, due to OPEC’s production cuts and U.S. sanctions on Iranian and Venezuelan oil, according to Morgan Stanley.
Early on Wednesday at 08:16 a.m. EDT, Brent Crude was trading just above $67 a barrel, down 0.49 percent on the day, while WTI Crude was down 1 percent at $58.70, before the weekly inventory report from the EIA.
Morgan Stanley’s view that oil prices will rise as the year progresses is underpinned by its assumption that in June OPEC will roll over the production cuts or even deepen them as the cartel appears ready to do whatever it takes to clear the current oversupply, CNBC quoted Morgan Stanley global oil strategists Martijn Rats and Amy Sergeant as writing in a research note this week.
“Conversations with several OPEC officials left us with the impression that Brent in the mid-$60s is not where the cartel would like to see it,” the investment bank’s analysts said after meeting with industry representatives at the CERAWeek energy conference last week.
Adding to OPEC’s willingness to clear the oversupply, the U.S. sanctions on Venezuela and expected fewer waiver extensions for Iranian oil customers once the current ones expire in early May will also push oil prices higher, according to Morgan Stanley.
The bank believes that the U.S. Administration will not go for ‘zero’ Iranian waivers, and will likely instead extend the exemptions for Iran’s biggest oil customers China and India, plus Turkey, but the total allowed volumes would be 900,000 bpd-1 million bpd, down from 1.2 million bpd in the first waivers.
In Venezuela, the blackout from earlier this month and the U.S. sanctions may have cut current oil production to 600,000 bpd-700,000 bpd, Morgan Stanley says, citing figures from Schlumberger.
OPEC’s resolve to do whatever it takes and the sanctions on Venezuela and Iran could tip the oil market into a 500,000-bpd deficit in Q2 and 800,000-bpd shortage in Q3, CNBC quoted Morgan Stanley as saying.
In January this year, Morgan Stanley expected supply and demand largely in balance throughout 2019, expecting Brent in the mid-$60s.