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Morgan Stanley Analyst Sees Oil Driven To $150 By July 4 Dow
Jones NEW YORK -(Dow Jones)- Strong demand from Asia will cause a short-term spike in oil prices to $150 a barrel by July 4, a Morgan Stanley analyst said Friday. Oil prices took a big step in that direction Friday, with benchmark futures rising 5% and topping $134 a barrel in morning trading. A spike to $150 would significantly raise the risk of severe damage to oil-sensitive sectors. Aviation executives have said even $125 oil wrecks the industry's business model, and chemical companies like Dow Chemical (DOW) have sharply raised prices to accommodate the soaring cost of petroleum feedstocks. Retailers and others who rely on consumers with budgets pinched by high gasoline prices are also under stress.
(Article continues below) Airline shares plunged Friday, cutting short a midweek rally spurred by deep capacity cuts at UAL Corp.'s (UAUA) United Airlines and Continental Airlines ( CAL). UAL, Continental, US Airways Group (LCC) and American Airlines parent AMR Corp. (AMR) were all down more than 7% in late morning trading. Delta Air Lines (DAL) and Northwest Airlines (NWA) were down more than 6%. Morgan Stanley analyst Ole Slorer said Asian countries are taking "an unprecendented share" of the world's oil. The strong demand from Asia, coupled with stagnant oil supply growth, "appears to be pricing out Atlantic basin consumers while at the same time driving Atlantic inventories to critically low levels," he told clients in a research note released early Friday. The argument echoes that made by Goldman Sachs analyst Argun Murti, who has said it is increasingly likely oil prices could spike as high as $200 before enough demand is knocked out to rebalance the market. U.S. lawmakers and regulators, unconvinced supply and demand fundamentals fully explain the oil price spike, are looking into oil markets for signs of manipulation and undue influence from speculators. Inventories of U.S. crude oil are down by 35 million barrels since March, Slorer said, which is helping to drive the price of oil higher. Slorer said he didn't see a "quick fix" to the problem of higher prices, because he didn't see oil imports slowing by a surprising amount any time soon. He also blamed the effect of oil subsidies in oil exporting countries, and didn't see them being abandoned by their governments despite international pressure. Subsidies mean consumers in high-growth countries aren't fully feeling the effect of rising prices, easing pressure that otherwise would force them to use less fuel.
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