MS Executive Director Jeremy Friesen Sees Prices Unsustainably Low, As Both Demand And Supply Will Move At These Levels

At the November meeting of the Energy Finance Discussion Group in Denver on Nov. 11, Jeremy Friesen, Commodity Strategist for Morgan Stanley’s Commodity Trading Group, gave a presentation that looked at global economic trends and movements of oil supply and demand. The presentation was entitled “Global Growth and Commodities: Flooded Or Temporarily Stalled?”

During his presentation Mr. Friesen said, “We were already seeing positive signs from reformist elections in places like Mexico, Indonesia and India that should help the global recovery through 2016.” However, he warned that US monetary policy could still be disruptive for oil pricing, given the size of the Fed balance sheet. “Even though QE3 purchases have ended, risks will remain with what the Fed does and doesn’t do with its 4.5 trillion dollar balance sheet,” Friesen told the group of finance and oil and gas executives.

Friesen told the group, “China is shifting from quantity to quality growth, but its quality growth will still be important given the size of the Chinese economy now,” and that India is where China was a little over a decade ago. “China didn’t matter till it mattered.” He said he looks for strong growth to come from India during the decade. “Basically in these two countries, one third of the world’s population is still developing,” he said. On the other side of the BRIC group, Friesen mentioned that commodity producers such as Brazil and Russia face dramatically different near-term growth paths with deteriorating investment environments. He mentioned some have warned Russia could even lose 20% of its oil production through 2017 owing to these issues.

“I don’t see Saudi Arabia using oil as a geopolitical weapon, but they are testing U.S. shale,” Friesen said. He expects to see Saudi Arabia eventually cut its elevated production. However, “even without immediate OPEC cuts, global demand should respond to the large price discount and help absorb current supply.” Friesen said OPEC will likely be driven by Saudi Arabia’s decisions.

Friesen recalled how rapid U.S. shale growth has helped offset global oil supply disruptions from Libya, Iran and Iraq. “Without the shale boom where would oil prices be today?” He discussed how lower priced oil will generate a significant boost for the global economy. “Everyone’s energy bill is reduced. The positive shock is well distributed, and very welcome. It hits every person relative to their consumption.”

Friesen said he would expect to see oil prices going back up to $90 [Brent] next year, eventually returning to triple digits. “Prices should drift back to triple digits over the next few years as the momentum in supply growth moderates and demand again tightens the oil balance,” Friesen told Oil & Gas 360®.

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

Legal Notice