Morgan Stanley: Why Brent oil prices could climb to US$90

U.S. two-dollar billsPhoto by Leslie Shaffer

Morgan Stanley raised its Brent oil forecast, tipped it could hit US$90 a barrel by 2020, amid rising demand for a particular refined product.

“Over the next few years, we expect tightness in one particular product – middle distillate – to lead to strength in one particular liquid, crude oil,and especially those crudes that look like Brent,” the bank said in a note this week.

Middle distillate is broadly three products, jet fuel/kerosene, gasoil/diesel and heating oil, it noted, adding that demand has already been growing, It estimated that three years of the current trend growth would add 1.7 million barrels per day to global middle distillate demand over 2017-20. It takes 1.8 barrels of crude oil to make a barrel of middle distillate, the note said.

Morgan Stanley also noted that new maritime fuel regulations, the IMO 2020, will also create another 1.5 million barrels per day of middle distillate demand. Put together, that means refiners would need to process an additional 5.7 million barrels per day of crude oil by 2020, the bank estimated.

“This would be a very large amount,and we suspect that production of crude oil would struggle to keep up with this,” it said.

Oil prices have already been on an upswing amid increased geopolitical tensions.

Nymex WTI crude oil futures were at US$71.61 a barrel at 3:58 P.M. SGT on Friday, while ICE Brent crude oil futures were at US$79.59 at 3:59 P.M. SGT, according to Bloomberg data.