Morgan Stanley Joins the Oil Bulls as US Crude Touches $75

At least one analyst thinks traders have overreacted to market tightening fears. File Image / Pixabay

As far as the analytical community is concerned, an ever-tightening crude market is inevitable, and with uncertainty persisting over the ability of key Organization of Petroleum Exporting Countries (OPEC) members and allies to reverse or at least slow the phenomenon, traders on Tuesday again caused crude prices to inch upwards, with West Texas Intermediate hitting a session peak of $75.27 - the highest level since November of 2014.

WTI rose 20 cents to settle at $74.14, while Brent was up 46 cents to $77.76 per barrel, and these gains were said to have also been helped by the supply disruption at the Canadian oil sands and concerns about Libya in the wake of another force majeure being declared on exports.

The line of thought building over the past few weeks is that neither Saudi Arabia nor Russia, despite their claims to the contrary, have the ability to compensate for a reduction in crude exports from Venezuela and Iran.

Whether this argument is either driven by sentiment or a general dislike for U.S. president Donald Trump (who has been widely criticized for taking a hard stance against the former and imposing sanctions against the latter), it has influenced jittery traders; however, Wednesday finally saw an opposing viewpoint, from Roberto Friedlander, head of energy trading at Seaport Global Securities.

Friedlander told CNBC that higher output from the Saudis, Russia, and the United Arab Emirates, along with surging U.S. exports, will likely compensate for disruptions not only in Venezuela and Iran but also Libya.

As for crude prices, he remarked, "We're overbought at the top of the range here and WTI has to roll over towards $68 to $71; I'm a big believer that we are going to see $62 to $63 before we see $80."

But for the time being at least, Friedlander is firmly in the minority; fear of market tightening and a loathing of Trump seems to garner more media attention, and accordingly Morgan Stanley on Wednesday attracted headlines by forecasting that prices will rise more than previously expected in the second half of this year, due to the U.S. president aiming to wipe out Iranian crude exports by November.

The bank sees Iran's production falling by 1.1 million barrels per day (bpd) at a time of high demand, as well as higher than expected declines in Libya and Angola, all of which will reportedly leave the market under supplied by about 600,000 bpd in the second half.

Consequently, Morgan Stanley thinks Brent will average $85 per barrel over the next six months; and it echoed the familiar refrain of other analysts with Martijn Rats, global oil strategist and head of the bank's European oil and gas equity research, declaring that OPEC members and Russia won't be able to fulfill demand: "This is occurring after inventories have declined substantially: expressed in days-of demand-cover, global stocks are close to five-year lows already; spare capacity was already thin but is now set to decline even further,.

"All the while, demand has remained robust and is set to accelerate seasonally in" the second half of 2018.

Concern over a tight market has reached the point where the once-laughable notion of crude reaching $100 per barrel is being seriously discussed by respected professionals such as Tamas Varga, strategist for PVM Oil Associates, who earlier this week remarked, "Depending on your belief, you could just as easily bet on $100 as $60 by the end of the year" due to the uncertainty surround supply.