Morgan Stanley also believes output disruptions from Venezuela will accelerate following this month’s power outages and U.S. sanctions on state oil giant PDVSA. The bank cited estimates from oilfield services firm Schlumberger at CERAWeek that Venezuela’s production might have plunged to roughly 600,000-700,000 barrels per day this month.
Comments at CERAWeek from Secretary of State Mike Pompeo and U.S. special representative for Iran, Brian Hook, also indicate that the U.S. will allow fewer Iranian barrels to hit the market, Morgan Stanley says. The Trump administration allowed eight countries to continue importing some Iranian oil when the U.S. restored sanctions on the Islamic Republic in November.
Morgan Stanley expects the administration to roll over waivers for China, India and Turkey in May and tighten exemptions for Japan and South Korea. It forecasts the U.S. will allow 900,000 to 1 million bpd of Iranian exports under the waivers, compared with about 1.2 million bpd in November.
On the demand side, Morgan Stanley says fears that oil consumption would slow sharply this year now appear to be overblown. That view also underpins Goldman Sachs’ view that Brent will top $70 a barrel.
Those dynamics will soon push the oil market into deficit, Morgan Stanley projects. The bank sees the market undersupplied by 500,000 bpd in the second quarter, with the deficit expanding to 800,000 bpd in the third quarter. That will support Brent crude at $75 a barrel in the third quarter.
Watch: CNBC’s exclusive CERAWeek interview with Mike Pompeo and Rick Perry
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