Morgan Stanley cuts oil price forecast amid rising supply and weakening demand

Morgan Stanley has revised down its oil price forecasts, reflecting expectations of increased supply from OPEC and non-OPEC producers amid signs of weakening global demand, the bank said in a report this week. The firm now anticipates that while the crude oil market will remain tight in the third quarter, it will begin to stabilize in the fourth quarter and potentially enter a surplus by 2025.

The adjustment comes as Morgan Stanley cuts its forecast for global oil demand growth to 1.1 million barrels per day (bpd) for 2024, down slightly from its previous forecast of 1.2 million barrels per day. This revision is driven by several factors, including a slowdown in production growth in key non-OPEC countries such as the US and Brazil. However, despite the downward revision in demand, the firm notes that these adjustments have marginally tightened the overall supply-demand balance for the rest of the year.

Morgan Stanley expected Brent crude prices to remain in the mid-$80s per barrel through the third quarter of 2024. However, recent market dynamics suggest that traders are already pricing in anticipated increases in supply and expected decline in demand in 2025. As a result, the firm cut its fourth-quarter Brent price forecast to $80 a barrel, down from $85, and now expects prices to gradually fall to $75 dollars per barrel by the end of 2025, slightly lower than their previous estimate of $76.

China’s economic slowdown was a significant factor in this revision to the demand outlook. Morgan Stanley points to several contributing factors, such as an increase in sales of LNG-fueled trucks, which are replacing traditional diesel fuel, along with the growing adoption of electric vehicles. Additionally, the firm points to slower demand growth for petrochemical feedstocks as another reason for the lower demand growth estimate.

While current spot market conditions remain tight, Morgan Stanley’s analysis indicates that oil market participants are increasingly looking at the anticipated taper in the latter part of 2024 and beyond. This shift in market sentiment underscores the cautious approach taken by investors and industry stakeholders, who are bracing for a potential rebalancing of supply and demand dynamics in the coming years.

In short, Morgan Stanley’s latest outlook suggests that while the immediate future may still see some tightening in the oil market, the longer-term trajectory points to a more balanced market, with potential price declines as that supply increases and demand growth continues to slow.

By Julianne Geiger for Oilprice.com

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