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Demand for crude oil remains healthy, and prices could stage a modest recovery as global refineries resume production after seasonal maintenance in order to prepare for rising winter demand, Morgan Stanley said in a report Monday.Hasan Jamali/The Associated Press

Demand for crude oil remains healthy, and prices could stage a modest recovery as global refineries resume production after seasonal maintenance in order to prepare for rising winter demand, Morgan Stanley said in a report.

In a webcast Monday, Morgan Stanley energy economist Adam Longson said there is little likelihood of a severe price drop like the one seen during the 2008-09 recession that took oil down to below $40 a barrel. It is speculators – rather than weakening market fundamentals – that are largely responsible for the most recent slump in crude prices, he said.

"The large downward move in oil over the past two weeks was mostly speculative, in our view," the New York-based analyst said.

"While the market remains oversupplied and lower OPEC [Organization of Petroleum Exporting Countries] production should be required, we see few signs of new deterioration in fundamentals."

In trading Monday, West Texas Intermediate – the trendsetting North America crude – crude was about steady at nearly $83 (U.S.) a barrel, while North Sea Brent fell 76 cents to finish at $85.40 a barrel.

Global oil prices have been falling since June, when they peaked on geopolitical concerns in Russia, the Middle East and North Africa. But that slump turned into a rout in September, as investors turned fundamentally bearish and began loading up on short positions, which are essentially bets that prices will fall further.

Mr. Longson said that, in some markets, short positions by money managers have soared to their highest level ever, leaving the market vulnerable to an exaggerated run-up – or a "short squeeze rally" – if prices turn higher and the short sellers have to cover their positions.

In arguing that the oil markets have oversold, Mr. Longson echoed Goldman Sachs economist Jeff Currie, who sent out a note on Friday suggesting there was no real supply glut – only the expectations of one.

Mr. Longson acknowledged that traders remain edgy and will be looking for signs from OPEC that it is prepared to cut production at its meeting in late November. But the Morgan Stanley economist said stronger-than-anticipated demand may be enough to keep prices at current levels, even if Saudi Arabia and other OPEC leaders stand pat on production in November.

So far, the Saudis have not indicated a willingness to cut production and may be waiting to see whether rising demand is enough to support prices at these levels.

"Demand will get better from October to December – you can see some pretty big increases in terms of crude runs," the Morgan Stanley economist said.

Typically, the International Energy Agency looks at petroleum products markets as the key benchmark for crude, but the economist said the two markets have decoupled for a variety of reasons, and the demand for crude is actually running a head of overall demand for petroleum products.

If the Saudis are looking to squeeze some high-priced producers out the market – as some analysts contend – prices will likely have to go a lot lower, though some companies may cut back on new investments at these levels. Mr. Longson said U.S. tight oil producers typically have costs well below $80 a barrel, and have reasons to keep producers even when profits get squeezed.

Indeed, U.S.-based oil services company Halliburton Co. said Monday it has seen no sign that the price swoon of the past few months has had an impact on drilling intentions in North America.

"We believe industry fundamentals suggest that these lower prices are not sustainable," chief executive Dave Lesar said on a conference call.

Halliburton's comments echo those of rivals Schlumberger Ltd. and Baker Hughes Inc. Market leader Schlumberger said it expected increased oil and gas spending in 2015 due to a rise in global demand, while Baker Hughes said clients would rethink projects only if oil fell to and remained at $75 for a few months.

With a file from Reuters