Morgan Stanley sees further downside risk for Brent crude

Things are likely to get worse before they get better in the oil market, according analysts at Morgan Stanley who slashed their forecasts for the commodity's price next year.

Analysts Adam Longson and Elizabeth Volynsky predict that the Brent crude could average just $70 a barrel (bbl) in 2015, down from their previous estimate of $98/bbl.

Brent on Monday touched a low of $66.43 a barrel, its worst level since October 2009.

"Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015," they said, forecasting a trough at $57/bbl during the period.

While they pointed out that current estimates of oversupply in the market are "vastly overstated", next year is likely to be volatile for the industry, especially in light of a stronger outlook for the US dollar.

"Even though dislocations are unlikely to match prior crises, the market is primed to sell any sign of trouble. The only true floor in an oversupplied market is cash cost (~$35-40/bbl)," Longson and Volynsky said.

"We would expect OPEC intervention or lost production to prevent this, but the lagged fundamental impact and sentiment could push prices to these levels for a brief period."

Nevertheless they highlighted "potential relief valves" for the price of oil, including an improvement in demand, slowing supply growth through 2015 due to reduced spend and project shut-ins, the increasing likelihood of outages, and potential intervention from OPEC.

Looking out to further years, Morgan Stanley estimates that prices could rise to $88/bbl in 2016 and $100/bbl in 2017, before falling to $92/bbl in 2018.