Crude oil prices have been on a tear since hitting 13-year lows near $26/bbl back in February. However, with WTI now trading above $42/bbl, Morgan Stanley sees very little upside remaining for now.

At the Dubai Commodities Conference, analyst Adam Longston argued that the recent oil rally was driven more by technicals than by underlying improvement in the oil market.

“In an oversupplied market, there are few fundamental factors to support pricing,” Longston explains. “Momentum, FX, macro trends and headlines are the primary factors along with hedging flows—led by macro/quant.”

As long as global markets remain oversupplied, Morgan Stanley expects WTI to trade within the $25-45/bbl range. One of the major pressures that oil prices begin to face in the $40 range is hedging by underhedged producers.

While most oil bulls believe the oversupply will soon be corrected by a drop in global production, Longston says it’s not always that simple. He warns…

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