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Morgan Stanley Sees Short-Term Upside For Brent Crude Oil, Questions Long-Term Viability

Garrett Cook

Morgan Stanley analyst Adam Longson on Monday released The Commodity Manual and he noted Q1 2015 may see some upside in oil prices, but that it could be short-lived. Five headwinds exist and excluding the impact of a major output outage these headwinds will continue to suppress oil.

Longson's Five Headwinds:

  1. OPEC doesn’t want to cut production and reaffirmed there will be no emergency meeting

  2. Inventory overhangs have yet to clear

  3. More supply to come on deck in 2015 from Brazil, US Shale, Canada, Iraq, Russia)

  4. Growing imbalances in Q2 2015

  5. USD appreciation through 2015.

Speaking to Brent oil specifically, the analyst commented:

"..flat price should continue to trade on concerns about OPEC, an upcoming supply overhang (OPEC needs to cut by 2Q15) and USD appreciation. For markets to turn bullish in the near term would likely require significantly tighter physical markets, potentially via supply disappointment or a large outage."

As for the potential floor in prices, Longson charts the Cash Cost Price Floor which, at around $40, runs in-line with most of the down talk coming from OPEC for $40 down to $30 oil.

(Click To Enlarge)

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