Morgan Stanley Economist Sees Oil Crash  

While Steven Roach has gone quiet about looming "financial armageddon", disappointing apocaphiliacs everywhere (this week's bearish prediction is a chinese slow down later in the year - I do occasionally wonder if his research is simply designed to sell bonds), his colleague in Hong Kong Andy Xie is calling the top for the oil market.

He seems very confident about a rise in supply from tar sands and LNG sources - which seems at odds with my understanding of the situation - has anyone seen any firm data about tar sand production for the next 12 months ? As for increased efficiency and conservation measures - are there any going on anywhere other than Chinese conversion from diesel generators to coal fired power plants ? How much diesel consumption is going to get displaced by coal ? Maybe this is just an attempt to shake out some weak longs from the market...

The oil market may be quickly headed for a massive crash as global economic growth slackens, alternative energy gains ground and financial traders sense a price peak, an economist with Morgan Stanley said on Thursday.

His projection for a multi-year bear cycle stands in sharp contrast to the super-spike scenario envisioned three months ago by Goldman Sachs, Morgan Stanley's arch-rival in the world of oil derivatives trading, where they are the two biggest players. "As evidence of weakening demand and ample supply accumulates, the market may panic," Andy Xie, Greater China economist in Hong Kong, said in a report. "I believe it could correct in the most speculative fashion -- it could collapse."

Oil prices have extended their two-year boom into the first half of 2005, gaining 28 percent since January to top $55 a barrel amid fears that already maxed-out refiners will struggle to supply enough fuel in the second half of the year.

In March, Goldman Sachs Global Investment Research issued a report that said oil markets had entered a "super-spike" period that could see 1970's-style price surges as high as $105. They said resilient demand in the United States and China, despite high prices, had forced them to revise up their forecasts, predicting it could take several years of high prices to curb demand and rebuild spare capacity in the taut system.

But Morgan's Xie said increased efficiency and conservation measures and the viability of alternatives like oil sands and liquefied gas and coal was already undercutting demand for oil.