Morgan Stanley: Oil to fall to $35 in few weeks


The most powerful in the last decades crisis of overproduction of gasoline is developing in the U.S. market, which will trigger a new round of falling oil prices.

Such a forecast was made on Wednesday by Morgan Stanley analyst Adam Longson.

According to him, the price of the “black gold” will fall down to $35 per barrel. This can happen as early as next month, or in 2 or 3 months the latest.

The rise of prices in August – from $40 to $45 per barrel of Brent – was only a short stop on the way of the bearish trend, provoked by the fixation of short positions in the futures market, said the expert.

Imbalances of the physical market remained intact: decline in prices in June and July increased the margin of refineries, that refuse to cut production, and keep pouring oil products at the already over-saturated market: stocks of unsold gasoline in the U.S. are at their historic highs, and almost 20% higher than the average level in 10 years.

This situation can not continue indefinitely: refineries tend to buy oil at a discount, and they will have to reduce the load in the nearest future.

The volume of foreign supplies in the United States will increase; also, Canadian oil gradually returns to the U.S. market.

Longson explains that the market can stop the decline at around $35 per barrel, if a significant amount of bets on price declines accumulated by that time: speculators will want to lock in profits, and begin to buy up contracts.

According to him, new lows will be accompanied by speculations about possible interventions from OPEC.