LONDON - Morgan Stanley on Wednesday cut its weighting on the European oil sector to "neutral", saying sky-high prices could fall by $15-$20 a barrel in a short time.
Morgan Stanley, which had been positive on the sector since the start of the year, said the price of oil was currently too high compared with its historical trend and a number of factors supported a retreat in prices.
U.S. crude futures hit a peak of $44.28 on Wednesday, the highest level since being introduced on the New York Mercantile Exchange in 1983.
Demand for oil was price elastic and would fall if oil prices remained high, Morgan Stanley European strategist Ben Funnell said.
"It's not a stretch to say that a sustained oil price above $40 a barrel would make the global economic uptrend rather unsustainable."
In addition, prices were at risk of a sharp pullback because the market was so overweight in oil.
"The institutions are overweight, the hedge funds are very exposed and commodity traders are net long in a big way," Funnell said.
"You have to make pretty heroic assumptions about long-run oil prices to believe that the valuation can rise from here."