Morgan Stanley: Oil may hit US$20 but not for the reasons you think
Most analysts cite oversupply as the main reason crude prices are sinking. But Morgan Stanley says a rising U.S. dollar, not a glut of oil, could see crude sink as low as US$20 a barrel.
“Given the continued U.S. dollar appreciation, $20 - $25 oil price scenarios are possible simply due to currency,” Morgan Stanley analysts said in a research note to clients Monday.
That’s not to say oversupply hasn’t made an impact at all. Morgan Stanley says a glut has driven crude to ranges low enough to slow investment, but it does not set the price.
“Oversupply may have pushed oil prices under $60, but the difference between $35 oil and $55 oil is primarily the USD, in our view,” the analysts said.
A brutal New Year selloff in oil markets deepened on Monday, with prices plunging as much as five per cent to new 12-year lows as further ructions in the Chinese stock market threatened to knock crude into the US$20s.
On Monday, China's blue-chip stocks fell by another five per cent and overnight interest rates for the yuan outside of China soared to nearly 40 per cent, their highest since the launch of the offshore market.
Morgan Stanley also warned that a further devaluation of China’s yuan could send oil prices spiraling lower still, extending the year's nearly 15 percent slide.
While China's ructions are spooking traders over the outlook for demand from the world's No. 2 consumer, drillers in the U.S. say they are focused are keeping their wells running as long as possible, despite the slump, executives told a Goldman Sachs conference last week.
On Monday, Brent crude futures fell $2.00 to settle at $31.55 a barrel, their lowest since April 2004.
U.S. West Texas Intermediate crude futures dropped US$1.50 to $31.66 a barrel, the lowest since December 2003.
Continued U.S. dollar appreciation is “like throwing another log on the fire” that continues to burn away at the battered commodity complex, according to Sprott Asset Management senior vice president Dennis Mitchell.
“You have a situation where a number of countries that were ramping up their oil consumption are now in poor position in terms of that they are levered to China, and China is slowing down,” Mitchell told BNN.
Morgan Stanley doesn’t see a “meaningful upturn” in oil prices for the next six months. It’s cutting its earnings forecasts between 30 and 70 per cent for oil and gas companies, saying dividend cuts are possible “but remain highly unlikely for the majors.”
Meanwhile, the European Union said on Monday that the lifting of sanctions on Iran could come soon, following a deal last year to curb the Middle East nation's nuclear program. Many market participants that Iran's return to the oil markets would add more pressure to the global glut that has knocked prices from more than $100 in mid-2014.
Even so, many big investors are still shifting more of their bets to the bearish side of the market. Speculators cut their net long position to the small since 2010 in the week to last Tuesday, with short positions rising in a sign that they are losing faith in a price rise any time soon.
source: Morgan Stanley: Oil may hit US$20 but not for the reasons you think - BNN News
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Canada's metro dollar will take a hit.. because Canada doesn't have a manufacturing industry anymore.
Most analysts cite oversupply as the main reason crude prices are sinking. But Morgan Stanley says a rising U.S. dollar, not a glut of oil, could see crude sink as low as US$20 a barrel.
“Given the continued U.S. dollar appreciation, $20 - $25 oil price scenarios are possible simply due to currency,” Morgan Stanley analysts said in a research note to clients Monday.
That’s not to say oversupply hasn’t made an impact at all. Morgan Stanley says a glut has driven crude to ranges low enough to slow investment, but it does not set the price.
“Oversupply may have pushed oil prices under $60, but the difference between $35 oil and $55 oil is primarily the USD, in our view,” the analysts said.
A brutal New Year selloff in oil markets deepened on Monday, with prices plunging as much as five per cent to new 12-year lows as further ructions in the Chinese stock market threatened to knock crude into the US$20s.
On Monday, China's blue-chip stocks fell by another five per cent and overnight interest rates for the yuan outside of China soared to nearly 40 per cent, their highest since the launch of the offshore market.
Morgan Stanley also warned that a further devaluation of China’s yuan could send oil prices spiraling lower still, extending the year's nearly 15 percent slide.
While China's ructions are spooking traders over the outlook for demand from the world's No. 2 consumer, drillers in the U.S. say they are focused are keeping their wells running as long as possible, despite the slump, executives told a Goldman Sachs conference last week.
On Monday, Brent crude futures fell $2.00 to settle at $31.55 a barrel, their lowest since April 2004.
U.S. West Texas Intermediate crude futures dropped US$1.50 to $31.66 a barrel, the lowest since December 2003.
Continued U.S. dollar appreciation is “like throwing another log on the fire” that continues to burn away at the battered commodity complex, according to Sprott Asset Management senior vice president Dennis Mitchell.
“You have a situation where a number of countries that were ramping up their oil consumption are now in poor position in terms of that they are levered to China, and China is slowing down,” Mitchell told BNN.
Morgan Stanley doesn’t see a “meaningful upturn” in oil prices for the next six months. It’s cutting its earnings forecasts between 30 and 70 per cent for oil and gas companies, saying dividend cuts are possible “but remain highly unlikely for the majors.”
Meanwhile, the European Union said on Monday that the lifting of sanctions on Iran could come soon, following a deal last year to curb the Middle East nation's nuclear program. Many market participants that Iran's return to the oil markets would add more pressure to the global glut that has knocked prices from more than $100 in mid-2014.
Even so, many big investors are still shifting more of their bets to the bearish side of the market. Speculators cut their net long position to the small since 2010 in the week to last Tuesday, with short positions rising in a sign that they are losing faith in a price rise any time soon.
source: Morgan Stanley: Oil may hit US$20 but not for the reasons you think - BNN News
.................
Canada's metro dollar will take a hit.. because Canada doesn't have a manufacturing industry anymore.
