Oil Prices Slammed, Bear Case Emerges According To Morgan Stanley

Analyst Adam Longson from Morgan Stanley commented on crude oil prices. The tone was decidedly bearish, as seen in his comments below:

"The bear case from OPEC has emerged. OPEC left its 30 mmb/d quota unchanged, offering little other supportive language, effectively removing the “OPEC put” for now. While lower production is still possible without a change in quota (as is lowering the quota in 2015), even temporarily removing the cartel leaves a much more pessimistic outlook for 1H15, at a minimum. If such a strategy turns permanent, we believe oil will enter a new paradigm where prices are subject to the swings of normal commodity cycles with much higher volatility."

Longson goes on to say that lower prices are bad for the entire oil complex, capex is likely to be cut further and high-cost projects will face more pressure. Without OPEC action or an outage, cash cost is the only true floor.

All hope is not lost for 2015. There are some reasons for optimism later in 2015, according to Morgan Stanley:

• Crude oil “supply imbalances” are vastly overstated.
• OPEC could still act in 2015, especially if prices fall too far
• Lower prices may spur non-OPEC exporters into action
• Low prices should stimulate demand and slow investment, which could begin to help as early as 2H15
• As prices fall, outage risks rise