Morgan Stanley expects oil crisis worse than in 1986

© Lucy Nicholson
Analysts from Morgan Stanley, who had predicted the 2015 in drop in oil prices to be as steep as in 1986, now say that it may be much worse.

The bank's experts concluded that the recovery in oil prices is less expected than ever, indicating that the decline may last for another three years or even more, and be much worse than in 1986 when the price plunged to $9.85 from $23.29 in December 1986, Bloomberg reports. In our current case, analysts said, the fall in price is going to be unprecedented.

The confidence in the recovery of oil prices was quite high until recently due to forecasts of increasing demand and a falling amount of investment. Analysts also expect low prices for the shares of oil companies and a falling demand in secondary industries that support the oil industry.

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The shares of oil companies are currently trading close to a 35-year low, analysts said. However, despite the strong global demand for oil and the reduction in investment, the supply of oil in the market has increased. While the US production saw a decrease since June, OPEC began to spoil the situation in the market, they say.

Morgan Stanley’s experts also note an increase in global oil demand by about 1.6 million barrels per day, compared with an average of 2014 and a decline of around $129 billion in 2015 in investments. The cut in investment resulted in a 42 percent drop in the number of drilling rigs around the world and a layoff of more than 70,000 workers in the oil industry.

However, Morgan Stanley analysts stick to a forecast showing that prices are expected to increase; the rise in oil prices will happen mainly because OPEC doesn’t have a significant amount of spare capacity and the storage tanks already filled. Nevertheless, the prospects for an increased oil supply from Iran and Libya leave room for concerns. The bank's experts also didn’t rule out an increase in oil production in the United States.