The current energy market picture is looking good if you’re bullish.
International benchmark Brent crude passed the long-anticipated threshold of $80 per barrel on Tuesday, though it’s since fallen back down to trade at $78.47 as of Wednesday at 10:30 a.m. in London. West Texas Intermediate was trading at $74.73 around the same time.
With winter on the horizon and a gas crunch in Europe, the demand picture looks promising. But demand destruction could lie ahead as prices climb higher, experts are warning.
“Oil prices have disconnected from the marginal cost of supply. Instead, they are travelling to the level where demand destruction kicks in, which we estimate at ~$80/bbl,” Morgan Stanley wrote in June, saying on Tuesday: “This remains our thesis.”
It added, however, that “the price at which demand destruction kicks in can be fiendishly difficult to estimate. We leave our price forecast unchanged for now but recognise that, on current trends, upside to our bull case scenario to $85/bbl clearly exists.”
Overall, Morgan Stanley foresees global oil supply getting tighter, citing an average of 3 million barrels of crude per day of inventory draws in the last month, compared to 1.9 million barrels per day in the preceding months of this year.