Oil At $150 By July 4th
Current crude oil shipping patterns suggest oil could reach $150 per barrel by July 4th, according to a new report by Morgan Stanley & Co. Inc. “We are calling for a short-term spike in oil prices,” says Ole Slorer, oil service research analyst. “Distribution patterns of crude oil out of the Middle East are mimicking those of last year as we exited the thrid quarter of 2007, when we predicted an oil price spike into yearend based on our projections of sharp inventory draws in the Atlantic basin. That same pattern is now again upon us, and we are making an identical call, only this time we are starting from a much tighter Atlantic Basin inventory backdrop.”
Middle East oil exports are stable, but Asia is taking an unprecedented share, according to the report. Robust Asian non-OECD demand growth, coupled with a stagnant global oil supply backdrop appears to be pricing out Atlantic basin consumers while at the same time driving Atlantic inventories to critically low levels. Middle East exports, the swing supplier into the Atlantic, is sending record volumes into Asia, while supplies into the Atlantic are hitting rock bottom. This has caused “oil in transit” to the Atlantic (think of this as the oil inside the transportation “pipeline”) to collapse by more than 20 million barrels since March, reports Slorer.
US inventories are down by 35 million barrels since March, thereby driving WTI to new highs. However, based on current distribution patterns, the U.S. is unlikely to break the trend of sharply drawing inventories on “surprisingly low imports” anytime soon. Furthermore, with further fuel subsidy cuts very unlikely given that most of the subsidies take place in net oil exporting regions Morgan Stanley does see a quick fix to the current problem.
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