(MENAFN- ProactiveInvestors)As oil production shows no sign of slowing down uncertainty grows and the major investment banks are worried. In early trading on Friday Brent crude was priced below US$49 with WTI above US$55 a barrel. A note from Morgan Stanley this week compared the demise of the oil price to that of the price crash in the mid-eighties or possibly worse. The bank said that confidence in a rising price had some support in recent months but that's about to change. The market was confident that demand would rise and oilrig activity fell by more than 40 percent limiting spending on new expensive oil production. The valuation of oil majors has declined and production eased in the US. All these elements looked hopeful for a rebound in the market but Morgan Stanley says OPEC members continued to produce thereby keeping the market over supplied. The only saving grace in this mix of events is the fact that OPEC has little spare capacity so prices should rebound in the medium term. Of course additional supply from Iran will present another unique set of problems and there's the distant hope that Libya's production could return to the market. The bank says there's little we can learn from the past as analysts had a very different set of factors to consider. Where the price will go is anyone's guess but Morgan Stanley is warning of a drop 'far worse than in 1986.' The World Bank issued its Commodity Markets Outlook this week and while the bank raised its 2015 oil price forecast it said the price would not return to 2014 levels. 'Demand for crude oil was higher than expected in the second quarter. Despite the marginal increase in the price forecast for 2015 large inventories and rising output from OPEC members suggest prices will likely remain weak in the medium-term' said John Baffes Senior Economist and lead author of Commodity Markets Outlook. The bank expects an average of US$57 a barrel for 2015 up from its previous estimate of US$53 a barrel. The main contributors to the upside remain geopolitical tensions and more closures of high cost projects. The risk to the downside remains continued production from OPEC members. The bank delivers a comprehensive review of commodity markets four times a year; the next report will be in October. The price of WTI seems range bound at US$50 a barrel in the short term but oil inventories are also on the increase up by 2.5 million barrels according to the US Energy Information Administration. Analysts had expected a drop in stockpiles last week. Crude oil supply can usually be lower this time of year as refineries are close to capacity processing gasoline and other fuels from crude oil. Currently refining capacity is running above 95 percent the highest level since 2005. Refining maintenance season wil start in six weeks and high inventories at this time of year is a concern. Goldman Sachs shares the view that supply of oil and some other commodities is far greater than demand. The head of the energy team Jeff Currie says he fears Brent crude will fall to US$50 a barrel with WTI around US$45. The investment bank sees some hope for 2016 with WTI back around US$60 a barrel. The usual suspects are to blame with extra production from Saudi Arabia increased Russian production and the prospect of increased Iranian production of up to a quick 400000 barrels hitting the market soon. The bank also flags the slowdown for oil demand in China but highlights the longer-term growth in demand that makes the commodity sector still attractive. The volatility in the market continues and with sluggish and uneven economic growth outlooks the short-term situation for the oil price looks bearish as we enter the second half of the year.
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