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Why Morgan Stanley Expects Crude Oil Prices to Trend even Lower


Nov. 20 2020, Updated 3:47 p.m. ET

Crude oil prices short-term trend

As of the end of April, crude oil prices had rallied by almost 70% since the lows of February 2016. But prices were still almost 60% lower than in June 2014. This drop in prices has stemmed from a supply-demand gap. (More more on this, check out “Will the Crude Oil Supply and Demand Gap Narrow by Early 2017?“)

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Crude oil price forecasts 

The World Bank reported that Brent crude oil prices could average around $41 per barrel in 2016, as compared to previous estimates of $37 per barrel. This is due to expectations of the narrowing supply-demand gap. A Reuters survey showed that Brent crude oil prices could average as high as ~$42.30 per barrel in 2016.

But a Wall Street Journal survey shows that Brent crude oil prices could average as low as $39.25 per barrel in 2Q16 before rising to $42.30 in 3Q16. And Morgan Stanley expects that crude oil prices could actually fall in 3Q16. The record US crude oil inventory and rising production from OPEC could support this expectation. Crude oil stored in US oil tankers will only add to the global glut.

Moving averages 

Meanwhile, as of May 2, 2016, June WTI (West Texas Intermediate) crude oil futures were trading above their 20-, 50-, and 100-day moving average levels of $42 per barrel, $40.3 per barrel, $38.9 per barrel, respectively. Also, profit booking could lead to a drop in crude oil prices because oil prices are trading close to their 2016 highs.

Such uncertainty in crude oil prices affects oil and gas producers like Carrizo Oil & Gas (CRZO), W&T Offshore (WTI), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM). Oil price uncertainty also influences ETFs and ETNs including the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the PowerShares DWA Energy Momentum (PXI), and the United States Brent Oil (BNO).

For ongoing analysis, keep checking in with Market Realist’s Upstream Oil and Gas page.


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