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OPEC Output to Rise, Indicating Price Gain, Morgan Stanley Says

OPEC’s output may rise in the second quarter to meet increasing demand from refiners, indicating prices will increase as spare production capacity is reduced, Morgan Stanley said.

Output by the Organization of Petroleum Exporting Countries could rise by 850,000 barrels a day from April to June, the bank said in the report published today. The group will pump more as refineries come out of maintenance and utilities in Saudi Arabia and Japan use more crude and fuel oil for electricity generation, said Morgan Stanley.

“Higher OPEC production should be a bullish indicator,” Adam Longson, a New York-based analyst at the bank, said. “We find OPEC production tends to follow prices rather than lead. In this case, higher demand should pull more Saudi crude onto the market.”

Increased oil output by the producer group cuts spare capacity and will reduce the amount of available supply, according to the report. OPEC provides about 40 percent of global production.

“Higher demand for OPEC crude points to a tighter global balance this summer, reinforcing our view that any spring weakness in Brent should mark a good buying opportunity,” Longson said in the report.

Brent futures for May settlement, the most active contract, today rose as much as 0.3 percent to $108.54 a barrel after dropping 0.9 percent yesterday. It was at $108.38 at 4:39 p.m. Singapore time. The April contract, which expires today, was at $108.80, after falling 1 percent the day before.

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