Morgan Stanley Cuts Oil Price Forecasts Amid Rising Supply and Weakening Demand

Morgan Stanley has revised its oil price forecasts downward, 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 through the third quarter, it will begin to stabilize in the fourth quarter and potentially move into a surplus by 2025.

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

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

China's economic slowdown has been a significant factor in this revised demand outlook. Morgan Stanley highlights several contributing elements, such as a surge in sales of LNG-powered trucks, which are displacing traditional diesel fuel, alongside the growing adoption of electric vehicles. Additionally, the firm points to slower growth in demand 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 ahead to the anticipated softening in the latter part of 2024 and beyond. This shift in market sentiment underscores the cautious approach being taken by investors and industry stakeholders, who are preparing for a potential rebalancing of supply and demand dynamics in the coming years.

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

By Julianne Geiger for Oilprice.com

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