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Following the OPEC meeting decision to hold to existing oil production cuts Morgan Stanley lowered its long-term Brent price forecast to $60 per barrel down from $65, with $65 the 3 quarter pivot point from $67.5 per barrel previously.

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Morgan Stanley in their note said:

"OPEC cuts can be very effective when they smooth over relatively temporary imbalances in supply and demand. However, when they become multi-year transfers of market share, history shows that they are usually associated with oil price weakness rather than oil price strength"

“Still, in the short term, there are some offsetting factors. Seasonal demand strength will likely result in inventory draws in the U.S. over the next 2-3 months, which creates upside risk,” the bank said adding, the International Maritime Organization (IMO) 2020 regulation should boost refinery crude runs in fourth-quarter this year and first-quarter of 2020, again supporting prices."

Morgan Stanley expects Saudi Arabia to continue to produce about 10 million barrels per day or slightly less throughout 2020, overcomplying with its 10.3 million barrels per day quota and said the oil market will be oversupplied by 0.3 million barrels per day in 2020, down from the estimate of 0.7 million barrels per day before.

There are caveats of course in their forecast. MS said a softer U.S. dollar and stimulus measures by global central bank on the back drop of economic weakness could drive prices higher.

Following the OPEC meeting oil prices fell more than 4% on Tuesday with Brent crude LCOc1 futures at $62.40 a barrel, down 4.1% than the previous session. U.S. West Texas Intermediate (WTI) crude CLc1 futures fell 4.8%, to settle at $56.25 a barrel, after touching their highest in more than five weeks on Monday.

Source: Reuters

From The TradersCommunity Research Desk

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