Crude oil to hit $90 a barrel as diesel, jet fuel demand soars, Morgan Stanley predicts

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Brent crude oil will average $90 a barrel in 2020 as demand for middle distillates like diesel and jet fuel grows, Morgan Stanley says.

Stockpiles of distillates are nearing five-year lows and refineries are scrambling to satisfy growing consumption, the bank notes.

New pollution rules in the shipping industry will only increase demand for distillates, Morgan Stanley warns.

Demand for diesel and jet fuel will help push Brent crude oil prices to $90 a barrel in 2020, according to Morgan Stanley.

The investment bank previously forecast Brent would average about $65 in each of the four quarters of 2020. Brent hit a three-and-a-half-year high at $79.47 a barrel on Tuesday. It hasn’t risen above $90 a barrel since October 2014.

But Morgan Stanley warns that stockpiles of middle distillates, which include diesel and jet fuel, are nearing five-year lows as demand for the fuel grows. Refineries around the world are now struggling to keep pace with consumption, it says.

“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,” Martijn Rats, Morgan Stanley’s global oil strategist, said in a research note on Tuesday.

That demand will grow by roughly another 1.5 million barrels a day due to tighter pollution rules in the shipping industry, Morgan Stanley projects.

In 2020, the International Maritime Organization will enforce new emissions standards that will require ships to either install equipment to scrub pollutants from engines or use cleaner-burning low-sulfur fuel. Morgan Stanley says most shippers will opt for the latter, effectively shifting demand from other fuel types to distillates.

Meanwhile, most of the growth in global oil production is coming from natural gas liquids and condensates, a type of super light oil. That’s a problem because neither of those liquids are used to make middle distillates, Morgan Stanley says.

According to the bank’s estimates, global crude oil output would need to grow by 5.7 million barrels a day by 2020 to meet growing distillate consumption. Morgan Stanley does not think that’s possible.

“We see global crude production re-accelerating again, but falling well short of this level. Since 1984, crude oil production growth over a 3-year period has reached this level only once,” Rats said.

On Wednesday, the International Energy Agency said it expects oil from countries outside OPEC to grow by nearly 1.9 million barrels a day this year.

The crude shortfall will help push gasoil prices to about $850 per ton, or 25 percent to 30 percent above today’s levels, Morgan Stanley projects. That will consequently push Brent to $90 a barrel.

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Godwin Okafor is a financial journalist, Internet Social Entrepreneur and the Founder Naija247news Media Ltd He has over 16 experiences in journalism, which cuts across traditional and digital media. He started his journalism career in Business Day, Where he was a senior editorial graphic artist, before he left to start Naija247news, An Online Financial Newspaper in 2010. He has won series of awards and he is the chairman of Emmerich Resources Limited, the publisher of Naija247news.com and also sits on the board of Students In Business Awards, (SIBA).

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