$100 plus oil a "stretch"

Morgan Stanley with the note.

Oil prices have found another boost from Saudi Arabia and Russia’s announcement to continue voluntary cuts at least until year end. With these cuts fundamentals are clearly tighter-forlonger and prices are well supported, which we reflect in forecasts. That said, Brent above $100 appears stretched.

All signals are flashing tightness: Not only has Brent flat price risen, but calendar spreads have rallied, refining margins are unusually strong, the CFD curve is deeply in backwardation and physical differentials are elevated. Furthermore, fundamental data tells a similar story. Demand growth has been robust this year and observable inventories are falling.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

$100 plus oil a “stretch”