Brent crude slips again as Morgan Stanley slashes forecast to $43 a barrel

Opec pumped 30.56 million bpd in November, exceeding its quota of 30 million for a sixth straight month, according to estimates compiled by Bloomberg. Andrew Harrer / Bloomberg

Brent crude took a further tumble on Monday after another major forecaster cut its price expectations for next year, adding to the bearish sentiment for oil markets.

The investment bank Morgan Stanley slashed its outlook and offered a worst-case scenario of the benchmark falling as low as US$43 a barrel in the second quarter.

It revised its earlier estimate for next year to $70 a barrel from $98 and lowered its 2016 outlook to $88 a barrel from $102.

Brent for January settlement declined as much as $2.30 to $66.77 a barrel on the London-based ICE Futures Europe exchange on Monday, the lowest intraday price in more than five years. It slumped 18 per cent last month, a fifth straight decline.

Industry experts expect oil prices to remain below $70 as the battle for market share between US producers and Saudi Arabia continues to take centre stage. BNP Paribas, Credit Suisse, UBS and Barclays have all cut their forecasts since Opec’s meeting last month when it maintained output amid oversupply.

The head of Kuwait’s state oil company said there was no likelihood of a rebound any time soon, forecasting prices to remain around $65 a barrel.

“I think oil prices will remain at these levels for the next six to seven months,” Nizar Al Adsani said. The chief executive added, ahead of Opec releasing its monthly report tomorrow, that prices would not increase barring fresh political crises, a change in Opec production policy or until concerns eased over the world’s economic recovery.

Opec’s market update will be followed by the International Energy Agency’s (IEA) report, collectively setting the tone for energy markets in the new year.

They are expected to reveal how much the 12-member group is actually producing after it decided to maintain official output levels at 30 million barrels per day (bpd), around 1 million bpd more than global demand for its oil.

The group pumped 30.56 million bpd in November, exceeding its quota of 30 million for a sixth straight month, according to estimates compiled by Bloomberg.

Last month the IEA, in a rare move, predicted a further drop in oil prices.

“While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $80 to $90 range, supply and demand balances suggest that the price route has yet to run its course,” the IEA said.

It added that lower Chinese economic growth and US shale output could result in prices falling further in the upcoming year.

“A well supplied oil market in the short term should not disguise the challenges that lie ahead, as the world is set to rely more heavily on a relatively small number of producing countries,” said the IEA chief economist Fatih Birol.

Meanwhile the US shows no signs of cutting back its shale oil production, which has increased by 3.6 million barrels a day over the past four years. Recently released rig count numbers in the US show the first gain in three weeks to a total of 1,575, defying predictions of a drilling slowdown, according to Baker Hughes.

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