Crude oil prices will rise as spare production capacity drops to "untenable levels" by the end of 2012, Morgan Stanley said in a research report.
Spare capacity passed its peak this year and may decline to 4.1 million barrels a day by the end of 2011 from 5.9 million barrels today, Hussein Allidina, an analyst at Morgan Stanley, said in the report today. It could drop to 2.5 million barrels a day by end-2012, he said.
"Tighter, impossible levels of spare capacity are seen from 2013 to 2015," the report said. "With demand relatively inelastic in the short run, we reiterate our view that higher prices will be needed to ration demand."
The bank maintained its end-2010 forecast of $95 a barrel, its 2011 forecast of $100, and 2012 estimate of $105 a barrel. Oil for December delivery traded at $81.83 on the New York Mercantile Exchange at 2:45 p.m. Singapore time.
Non-OPEC production may decline by 380,000 barrels a day in 2011 to 52.2 million barrels, and by a total of 2.2 million through 2015, according to the report. That means OPEC will need to pump more as global demand increases.
"OPEC will increase production prompted by declining inventories," Allidina said. "Although OPEC production capacity grows, contingent on an Iraqi production increase of 1.4 million barrels a day, the 1.5 million OPEC crude production increase envisioned through our forecast horizon is not sufficient to offset non-OPEC declines."
To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.
To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net.
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