Morgan Stanley Cuts Brent Crude Oil Forecasts

(Reuters) – Morgan Stanley on Monday cut its Brent crude oil forecasts for coming quarters and stated that the global oil market is facing a demand weakness similar to that seen during recessions.

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

Rising fuel inventories, lower refining margins, and the spreads between current and future prices echo previous recessionary periods or moments of weak demand, according to Morgan Stanley.
These include the declining demand periods in 2007-2008 due to the financial crisis and in 2020 due to the onset of COVID. There are also parallels with non-recessionary periods of lackluster demand and higher supply in 2013 and in 1992-1993.

The bank explored the potential for oil prices to act as a recessionary indicator but concluded that it was too early to say. They acknowledged that the market is pricing in significant deterioration in the supply and demand balance.

Seasonal demand strength typically subsides after summer, and supply from both OPEC and non-OPEC sources is likely to re-accelerate in the fourth quarter and 2025, leading to a shift in the supply-demand equilibrium.

However, the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, are focused on balancing the market. This is evidenced by their decision to delay output increases that were expected in October.

Morgan Stanley anticipates oil markets to remain tight in the third quarter, approaching balance in the fourth quarter, and displaying a surplus of around 1 million barrels per day by 2025.

The bank has cut its Brent price forecast for the fourth quarter of 2024 by $5 per barrel to $75, a level they now see for all quarters of next year. Previously, they expected Brent to average $78 in the first quarter of 2025 and gradually decline to $75 by the fourth quarter.

They forecast WTI prices at $70 a barrel until the fourth quarter of 2025.

Though rising OPEC output is a significant factor behind the surplus predicted for 2025, the bank cautioned that this does not necessarily justify the recent decline in prices. They added that the market appears modestly oversold in the short term.

Unless demand weakens further, Brent is likely to remain around the mid-$70s.