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Brent Oil at $80 Could Destroy Demand: Morgan Stanley

'Oil prices have disconnected from the marginal cost of supply. They are traveling to the level where demand destruction kicks in,' Morgan Stanley said.
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An old saw has it that the cure for higher oil prices is -- higher oil prices, and Morgan Stanley apparently agrees.

It sees Brent crude at $80 a barrel as “destructive” to demand. The idea is that high oil prices discourage users from buying it.

Brent on Wednesday traded at $79.17, up 8 cents. Oil demand is rising as the Delta COVID-19 variant subsides, and supply has shrunk after the recent hurricanes in the U.S.

“Oil prices have disconnected from the marginal cost of supply. Instead, they are travelling to the level where demand destruction kicks in, which we estimate at about $80 per barrel,” Morgan Stanley wrote in June, as cited by CNBC.

Tuesday, its analysts Martijn Rats and Amy Sergeant said: “This remains our thesis.”

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"The price at which demand destruction kicks in can be fiendishly difficult to estimate,” the analysts said.

“We leave our price forecast unchanged for now but recognize that, on current trends, upside to our bull case scenario to $85 a barrel clearly exists.”

Rats and Sergeant noted that the average crude inventory draw averaged 3 million barrels per day in the last month, soaring from 1.9 million barrels per day in the earlier months of the year.

“These draws are high and suggest the market is more undersupplied than generally perceived,” the analysts said. Another bullish sign: flights and other transport have picked up, they said.

On Monday, TheStreet.com founder Jim Cramer discussed his oil stock picks, which included Chevron  (CVX) - Get Chevron Corporation Report and Devon Energy  (DVN) - Get Devon Energy Corporation Report.