Morgan Stanley cuts Brent crude price forecast

Morgan Stanley on Monday lowered its Brent crude oil price forecasts for the coming quarters, citing signs of weakening global demand. The investment bank believes that the current oil market conditions resemble those seen during past recessions.

Brent crude futures settled at their lowest levels since December 2021 on Friday. The bank expects Brent to trade around $71.74 per barrel in the near term.

Factors such as rising fuel inventories, lower refining margins, and the spread between current and future prices are indicative of weak demand, similar to periods during the 2007-2008 financial crisis and the COVID-19 pandemic.

While the bank explored the possibility of oil prices acting as a recessionary indicator, it concluded that it’s too early to say definitively. However, the market is currently pricing in a significant deterioration in the balance of supply and demand.

Seasonal demand typically weakens after summer, and both OPEC and non-OPEC sources are expected to increase production in the fourth quarter and 2025. This could lead to a shift in the supply and demand balance.

Despite this, the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) remain focused on balancing the market. This is evident in their decision to delay output increases that were scheduled to start in October.

Morgan Stanley expects oil markets to remain tight in the third quarter but to become more balanced in the fourth quarter. In 2025, the bank forecasts a surplus of around 1 million barrels per day.

The bank has cut its Brent price forecast for the fourth quarter of 2024 by $5 per barrel to $75. For 2025, it now expects Brent to average $75 per barrel throughout the year. WTI prices are projected to remain at $70 per barrel until the fourth quarter of 2025.

“Although rising OPEC output is a key factor behind the surplus we model for 2025, we would be hesitant to argue that this justifies the recent price decline,” Morgan Stanley report said, adding that the market appears modestly oversold in the short term.

Attribution: Reuters