Morgan Stanley Predicts Oil Market Tightness to Ease in 2025, Brent Prices to Decline

According to a recent note from Morgan Stanley, the current tightness in the crude oil market is expected to ease next year, leading to a potential surplus and a decline in Brent prices to the mid-to-high $70s range.

While the market is expected to remain tight throughout most of the third quarter, the bank anticipates a return to equilibrium by the fourth quarter. This shift is attributed to a combination of factors, including the seasonal abatement of demand and the resumption of supply growth from both OPEC and non-OPEC sources.

Supporting this outlook, sources revealed to Reuters that OPEC+ is unlikely to recommend any changes to its output policy at the upcoming mini-ministerial meeting. This would maintain the existing plan to gradually unwind oil output cuts starting in October.

Morgan Stanley forecasts a substantial increase in OPEC and non-OPEC supply of around 2.5 million barrels per day (bpd) in 2025, outpacing demand growth. The bank also predicts that refinery runs will peak in August this year and are unlikely to reach that level again until July 2025.

Despite the anticipated easing of tightness, Morgan Stanley has maintained its forecast for Brent crude prices in the third quarter of 2024 at $86 per barrel. This aligns with Goldman Sachs’ projection for the same period.

Currently, Brent crude prices are trading at $83.08 a barrel, up 0.54% on Monday, while U.S. West Texas Intermediate crude futures are also up 0.54% at $80.56.

While the short-term outlook for the oil market remains tight, Morgan Stanley’s forecast suggests a potential shift towards a more balanced market in 2025, with a possible decline in Brent prices to the mid-to-high $70s range. This prediction is contingent on the projected increase in supply and the seasonal fluctuations in demand.

Investors and market participants will be closely monitoring OPEC+ decisions and global economic developments to assess the accuracy of these forecasts and their potential impact on the oil market in the coming months.