Morgan Stanley lowers Brent crude oil price forecast as market signals softening demand
Morgan Stanley cut its Brent crude forecasts for the coming quarters on Monday and said that the global oil market was facing a period similar to recessions when demand is weak.
Brent crude futures reached their lowest level since December 2021 at $71,06 on Friday. Brent crude was trading at around $71.74 per barrel by 1026 GMT.
Morgan Stanley stated that the rising fuel inventories and lower refining margins, as well as the spread between the current price and the future price, all echo past recessionary periods and other moments of low demand.
The investment bank cited the falling demand periods in 2007-2008, due to financial crisis, and 2020, due to COVID. The bank also noted parallels between the non-recessionary period of low demand in 1993 and 2013 as well as periods with higher supply during 1992-1993.
The bank considered the possibility that oil prices could act as a recessionary indicator, but decided that it was still too early. They also acknowledged that the market had already priced in a significant deterioration of the balance between supply and demand.
The seasonal strength of demand usually decreases after the summer. Supply from both OPEC- and non-OPEC-sources is likely to reaccelerate between the fourth quarter of 2025 and the end-of-the-year, leading to a change in the balance between supply and demand, according to the bank.
The bank said that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia, a collective known as OPEC+ is focused on balancing the markets, as shown by the decision to postpone the output increases scheduled to begin in October.
Morgan Stanley predicts that oil markets will remain tight during the third quarter. They expect them to move towards balance in the fourth, and to show a surplus around 1,000,000 barrels per day by 2025.
The bank has cut its Brent forecast for the fourth quarter of 2024 by five dollars per barrel, to $75. This is now a level that it expects for all four quarters in 2019. The bank had forecasted Brent to average $78 per barrel in the first quarter 2025, and then to drop steadily through the year until $75 in the last.
The WTI price is expected to remain at $70 per barrel until the 4th quarter of 2025.
It said that although rising OPEC production is a major factor in the surplus that we model for 2025 we are hesitant to say that this justifies recent price drops. The market, it added, appears modestly oversold on the short-term.
It added that unless demand continues to weaken, Brent is likely to remain around mid-$70s. (Reporting from Rahul Paswan in Bengaluru and Swati verma; editing by Jan Harvey.)
(source: Reuters)
