Morgan Stanley point to 7 uncertainties for oil in 2023

Morgan Stanley analyst Martijn Rats told investors in a note Friday that there are seven uncertainties for oil in 2023, and the firm's balance points to slight oversupply until the end of 1Q but a return to equilibrium in 2Q and a deficit in 2H23.

He explained that much depends on seven key uncertainties, which include the aviation recovery, China's re-opening, EU embargo on Russian oil, diesel tightness, the outlook for US shale, the end of SPR releases, and capital expenditure.

"If our base case expectations for each play out, they would tend to be constructive for prices. If we are wrong, the market would be left with the status quo which would be neutral. For now, the oil market is faced with macroeconomic headwinds. Looking into 2023 however, the factors below eventually skew risks positively," wrote Rats.

On the aviation recovery, the analyst said global jet fuel consumption is still ~2 mb/d below 2019 levels, and they suspect a large share of this to return in coming years.

Meanwhile, Morgan Stanley believes China's oil demand is currently ~1 mb/d below 2020/21 levels, held back by lockdowns and other mobility restrictions. However, after the first quarter of 2023, the firm expects China's oil demand to start recovering.

"In October, the EU still imported ~2.4 mb/d of Russian oil. In the coming months, not only will Russia need to find other buyers, the EU will need other suppliers. Much of that can happen, but probably not fully, smoothly, fast and without price impact," added Rats.

Oil prices have edged slightly lower on Friday, although somewhat stable, as fears regarding China lockdowns and a price cap on Russian oil creep in.

By Sam Boughedda

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