Morgan Stanley cuts Brent crude price outlook as market signals call for soft Reuters

(Reuters) – Morgan Stanley cut its forecast for the coming quarters on Monday and said the global oil market was facing a period of weak demand similar to that seen during recessions.

Brent crude futures settled at their lowest level since December 2021 at $71.06 on Friday. Brent was trading around $71.74 a barrel at 1026 GMT. (OR)

Rising fuel inventories, lower refining margins and differences between the current price and the forward price all reflect previous periods of recession or other times of weak demand, Morgan Stanley said.

These include periods of lower demand in 2007-2008 due to the financial crisis and in 2020 due to the outbreak of COVID, the investment bank said. There are also parallels to non-recessionary periods of weak demand and higher supply in 2013 and in 1992-93, the bank said.

The bank explored the possibility of oil prices acting as a recession indicator, but concluded that it was too early and acknowledged that the market was pricing in a substantial deterioration in the balance of supply and demand.

Seasonal demand strength typically declines after the summer, and supply from both OPEC and non-OPEC sources is likely to reaccelerate in the fourth quarter and into 2025, leading to a shift in the supply-demand balance, a said the bank.

However, the Organization of the Petroleum Exporting Countries and its Russian-led allies, a group known as OPEC+, is focused on balancing the market, as evidenced by its decision to delay output increases that were due to start in October, the bank added.

Morgan Stanley expects oil markets to remain tight in the third quarter, approach balance in the fourth quarter and show a surplus of about 1 million barrels per day in 2025.

The bank cut its Brent price forecast for the fourth quarter of 2024 by $5 a barrel to $75, a level it now sees for all quarters next year. It had previously forecast Brent to average $78 in the first quarter of 2025 and fall steadily throughout the year to $75 in the fourth.

WTI prices are at $70 a barrel by the fourth quarter of 2025.

“While OPEC production growth is a key driver behind the surplus we are modeling for 2025, we would be hesitant to argue that this justifies the recent decline in prices,” he said, adding that the market appears to be modestly oversold in the near term.

Unless demand weakens further, Brent will likely remain anchored in the mid-$70s, he added.