Oil Stuck at $30-$60 Is in Line With Long Term Historical Average: Morgan Stanley

Morgan Stanley believes that oil is stuck in a trading range of between $30 and $60.

If recent predictions on crude prices seem to range wildly, there's a reason for it, says Ruchir Sharma, head of emerging markets at Morgan Stanley, who told Bloomberg television that oil is stuck in a trading range of between $30 and $60.

He said, "If you look at the history of what's happened to oil bull markets, which is the fact that typically after you end up getting a crash in oil prices, the price of oil tends to trade in a very wide range for a long period of time to come; so my best bet is that the price of oil is stuck in a range of between $30 to $60 for the foreseeable future."

The prediction covers the breadth of forecasts made by various experts of late, from the $35 lows suggested earlier this week by Philip Verleger, president at PKVerleger, to the mid-$60s over the next few months as predicted late last month by Emmanuel Kachikwu, minister of state for petroleum for Nigeria (numbers as high as $100 have been bandied about but have failed to gain any real traction in the analytical community).

Sharma added, "the base case is that the price of oil today is trading in line with its very long term historical average.

I think this is the perspective lost to many people: the price of oil seems to have come off a lot from the highs of $140, but that was such an abnormal high; if you look at the 100 year history of oil prices, in inflation adjusted terms today, the price of oil is not much higher than where it has been over the last 100 years."

As for forces that might shake up the market in the near term, Sharma cited U.S. president Donald Trump's proposed border-adjusted corporate tax (whereby imports into the States would be taxed but U.S. business export revenues would be exempt from corporate taxation) as something that would have a huge impact "on the internals of the market"; but he added, "we won't see much clarity on that" until mid-year, both in terms of the prospect of it being implemented as well as its structure.

For the time being, Sharma echoed the sentiment of many other colleagues by stating, "If you look at the consensus forecast, people aren't expecting much more than a 2.5 percent growth for this year or next year."

BP earlier this week stated that it  believes oil prices will remain above $50 per barrel this year – which is a far cry from the $60s that many analysts and some Organization of the Petroleum Exporting Countries (OPEC) members predicted would be the outcome of the cartel's production cutback agreement.