Morgan Stanley's commodities chief sees oil prices hitting $100 per barrel this year

Published Fri, Jan 28 20229:58 AM ESTUpdated Fri, Jan 28 202210:04 AM EST

Morgan Stanley expects international oil prices to hit $100 per barrel by the third quarter this year, the firm's chief commodity strategist Martijn Rats told CNBC. Tight supply and optimism that the Covid omicron variant will not hinder the global economy's recovery has driven oil prices higher. Brent crude , the international benchmark, was trading above $91 per barrel early Friday, up roughly 70% in the last year and the highest level since October 2014 . The American oil benchmark, West Texas Intermediate crude, was also in seven-year high territory, above $88 per barrel Friday morning. "To balance the physical flow of oil over the course of 2022 — that is what we need. We need a price that slows down this demand's recovery and that is a high price," Rats said Thursday in an interview on "The Exchange" — adding that oil prices could even exceed $100, addressing a call he made earlier this month. The investment banking firm said in a memo on Jan. 20 that it expects oil to hit a "triple deficit" — low inventories, low spare capacity and low spare investment — by the middle of this year and oil prices will rise to help curb recovering demand. While inventories and spare capacity will continue to fall, investment will recover by 8% to 9% this year, said Morgan Stanley. Rats said Thursday that while rising inflation is often a bad omen for stocks, it has historically been great for commodities. The Federal Reserve , after its two-day January meeting this week, pointed to a March interest rate increase to fight mounting price pressures in the economy. It would be the first hike of the Covid-era from near zero rates. The market expects four rate increases this year. "Commodities provide good inflation protection. They've done so once again over the last 12 to 18 months," Rats said. "Some of the popular equity sectors don't do so well when rates go up, and in that sense, rising inflation driving rates favors commodities over equities." Oil in particular has a "very clean story," Rats said, adding that other commodities like aluminum, nickel, iron ore and sugar have "a lot to play for." Analysts, including Rats, are bullish on copper due to its use in many modern-day tech products. "Copper had a great year last year," he said. "It's not quite our pick for 2022. But for the medium to long term," it's a promising investment, he added.

Oil pump under the blue sky with beam pumping unit in the oil field.

Zheng Zaishuru | iStock | Getty Images

Morgan Stanley expects international oil prices to hit $100 per barrel by the third quarter this year, the firm's chief commodity strategist Martijn Rats told CNBC.