Morgan Stanley has once again revised its oil price forecasts downward, reflecting growing concerns about global demand as supply remains abundant. The investment bank now expects Brent crude, the global oil benchmark, to average $75 per barrel in the fourth quarter of this year, a sharp reduction from its previous forecast of $80. This latest revision comes just weeks after the bank had already lowered its expectations from an earlier estimate of $85.
The recent decline in Brent crude prices, which last week hit their lowest level since late 2021, has been driven by a combination of factors. Weaker-than-expected demand from China, coupled with signals of a potential slowdown in the U.S. economy, have raised alarm bells across the market. As a result, Morgan Stanley, alongside other major financial institutions, is reevaluating the prospects for oil prices in the near to medium term.
"The recent trajectory of oil prices has similarities to other periods with considerable demand weakness," said Martijn Rats, Morgan Stanley's global commodity strategist, in a report dated September 9. He noted that time spreads-the price differentials between current and future contracts-are beginning to reflect recessionary conditions, characterized by inventory builds. However, Rats and his colleagues cautioned that it is still too early to definitively label the current environment as a recessionary scenario.
This cautious approach is mirrored by other major banks, including Goldman Sachs and Citigroup, both of which have also adjusted their oil price outlooks downward in recent months. Citigroup, in particular, has warned that unless the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, implement deeper production cuts, Brent crude prices could average as low as $60 per barrel by 2025.
Morgan Stanley's latest forecast reflects a growing consensus that the global oil market is entering a period of demand softness. The bank's analysts draw parallels between the current market conditions and past periods of demand weakness, such as the global financial crisis of 2007-2008 and the onset of the COVID-19 pandemic in 2020. Similar patterns were also observed during non-recessionary periods in 2013 and 1992-1993, where lackluster demand coincided with ample supply.
Rising fuel inventories, lower refining margins, and the flattening of the futures curve-all indicators of a weakening market-have prompted Morgan Stanley to reassess its outlook. The bank now expects the oil market to remain tight through the third quarter, before moving closer to balance in the fourth quarter. By 2025, Morgan Stanley anticipates a surplus of approximately 1 million barrels per day, driven by increased output from both OPEC and non-OPEC producers.
Despite these bearish signals, OPEC+ remains committed to stabilizing the market. The group recently decided to delay planned output increases that were due to start in October, a move that underscores its focus on balancing supply and demand. However, Morgan Stanley's report suggests that even with these efforts, the market may struggle to avoid a surplus in the coming years.
For the longer term, Morgan Stanley has also adjusted its price expectations. The bank now sees Brent crude averaging $75 per barrel throughout 2024, down from an earlier forecast of $78 for the first quarter of 2025. Meanwhile, West Texas Intermediate (WTI), the U.S. benchmark, is expected to trade at around $70 per barrel through the end of 2025.
The recent slump in oil prices has also been influenced by broader market sentiment, with some analysts suggesting that the market may be modestly oversold in the short term. Morgan Stanley, however, remains cautious, warning that unless demand weakens further, Brent crude is likely to remain anchored around the mid-$70s.
