Morgan Stanley Cuts Brent Crude Oil Forecasts

(Reuters) – Morgan Stanley on Monday cut its Brent crude oil forecasts for coming quarters, noting a similar period of demand weakness to those during recessions.

Brent crude futures settled at their lowest levels since December 2021 on Friday at $71.06 and were trading around $71.74 a barrel as of 1026 GMT.

Key Factors Impacting the Market

Rising fuel inventories, lower refining margins, and current price spreads suggest conditions akin to previous recessionary periods, according to Morgan Stanley. They referenced the demand drops in 2007-2008 during the financial crisis and in 2020 with COVID-19. They also noted similarities to non-recessionary times of weak demand in 2013 and 1992-1993.

Morgan Stanley assessed oil prices as a potential recession indicator but concluded that it was premature to make such determinations. They acknowledged significant market concerns regarding the supply-demand balance.

Seasonal demand usually decreases after summer, and supplies from both OPEC and non-OPEC sources are likely to increase in the fourth quarter and 2025, altering the supply-demand dynamics.

While the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia (OPEC+) strive for market balance, evidenced by delaying output increases originally planned for October, Morgan Stanley anticipates:

• Tight oil markets in Q3
• Closer to balanced markets in Q4
• Surplus of 1 million barrels per day by 2025

Updated Price Predictions

Morgan Stanley has revised its Brent price forecast for Q4 2024 down by $5 to $75 per barrel, now projecting this level for all quarters next year. Previously, forecasts suggested an average of $78 in Q1 2025, declining throughout the year to $75 by Q4.

The bank projects WTI prices at $70 per barrel until Q4 2025. They noted that although increasing OPEC output contributes to the projected surplus for 2025, it does not entirely explain the recent price decline. They concluded that the market seems somewhat oversold in the short term, stating that unless demand weakens significantly, Brent prices are likely to be centered around the mid-$70s.