MS - Oil Prices--Staying Higher for Longer (A Real Tax)
Eric Chaney and Richard Berner (London and New York)
Once again, we raise our oil price assumptions
Ironing out the volatility generated by the intervention of allied forces in Iraq in late 2002 and early 2003, crude oil prices have been on a steady upward trend since the end of 2001. Back in August 2003, we took stock of market developments and raised our working assumptions for 2004 from $24.70/bbl. to $26.90 for Brent quotes (Waiting for Iraq, Discounting the Missing Barrels, Eric Chaney and Richard Berner, August 18, 2003). We acknowledged that supply demand conditions rather than speculation (or an elevated risk premium) explained why “crude oil prices were to stay higher and for longer than we thought.” Today, we feel that we did not go far enough in our reassessment of oil market conditions. Consequently, we are revising upward our end-of-year target for Brent from $27 to $31 and our annual average estimate from $26.90 to $30.40, a 13% upward revision. Before exploring the structural factors that explain why fossil energy prices are so well supported, we think it is worth paying attention to the messages commodity markets have been sending over the last few years.
Me, too on getting rid of the watch...
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