Tags: Morse | oil | fall | Brent

Citi’s Morse: Oil Prices Are Destined to Fall Over Long Term

Monday, 26 Nov 2012 08:35 AM

Oil prices have shot up in the recent past due to concerns that conflicts in the Middle East could escalate into regional war and threaten supply, but over the long term, prices are set to fall due to recent investments coming online, said Edward Morse, head of commodities research at Citigroup.

Sanctions against Iran have shaved 1 million barrels of oil a day from the market, while political issues in other parts of the world, including Sudan and Yemen, have siphoned another 1 million barrels of oil a day from the global market.

Saudi Arabia has offset a good bit of that shortfall, but soon, investments made in upstream oil projects in the United States and elsewhere across the globe will ensure lasting supply and push crude prices down.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“We think Brent is going to go down 10 percent or maybe a little more. We have a $90 level for Brent — $90 to $100 level,” Morse told CNBC.

Brent crude, a European blend, is currently trading around $111 a barrel, while its U.S. cousin, West Texas Intermediate, is trading around $88 a barrel.

“[T]he fruits of new investments are coming in, and there’s just a lot of oil coming into the market, particularly from North America,” Morse said

“Between the U.S. and Canada, we will be a net exporter, and when I say between ourselves and Canada, it’s because the Canadians can’t export their oil anywhere other than to the U.S. and their production is going up steadily every year.”

Other commodities are due to see prices come down as well, including natural gas and coal.

“We’re saying that the day when you can throw a dart at the dart board and look at any commodity and make money, those days are over,” Morse said.

“Just as in oil and in U.S. natural gas even more so, so, too, in base metals and thermal coal — almost wherever you look other than agriculture, which is a little special, and gold, which is a little special, supply is coming into the market faster than demand id growing.”

Meanwhile, supplies are on the rise in Mexico, where the state-owned oil company, Petroleos Mexicanos, said recently that a crude deposit in Tabasco state could hold as much as 1 billion barrels of reserves.

“Pemex has steered itself toward investments in exploration, and it’s showing results,” Mexican President Felipe Calderon said recently, according to Bloomberg.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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