Investing.com — The bumpy ride appears to be on a path previously paved with recession indicators, including the COVID-19 pandemic and the Great Financial Crisis periods, but Morgan Stanley believes a recession is unlikely as the U.S. economy remains on a healthy basis.
“Oil prices have recently followed a path that suggests periods of significant demand weakness and calendar spreads are already consistent with recession-like inventory build-ups ahead,” Morgan Stanley analysts led by Martijn Rats said in a note, though they warned against drawing direct parallels with previous developments. recessions.
Although demand is weak, analysts believe that the current outlook for the oil market is different from previous recessions as seen in the COVID-19 and Great Financial Crisis scenarios.
While a recession is possible “but not in our base case,” the analysts said, as they continue to expect the U.S. economy to achieve a soft landing or avoid a recession.
Recent labor market data is weaker than expected, but not enough to change our basic view […] Ultimately, we see the U.S. economy exiting 2024 on a fundamentally sound footing,” the analysts said, citing recent comments from Morgan Stanley economists.
The previous recessions were characterized by a significant deterioration in demand, leading to a supply glut and heavy oil prices. But it could be argued, the analysts say, that supply rather than demand will be the “main driver” of the inventory build-up that is already keeping oil prices low. .”
As supply comes into focus, OPEC’s actions to balance the market and the pace of non-OPEC production, led by the US, are taking center stage.
OPEC has already announced that it will postpone plans to increase production by two months until December, signaling its willingness to balance the market.
While the US is expected to cut production more than expected now that oil prices are below $70 a barrel, Morgan Stanley estimates.
“With that in mind, we have made some changes to our supply/demand model,” the analysts said after lowering their crude oil surplus forecast next year to 700,000 barrels per day from a previous forecast of around 1 million barrels per day.
“We still estimate a surplus in 2025, but slightly smaller than before. Unless demand weakens further, we estimate it will likely remain anchored around the mid-70s,” she added.
Despite OPEC’s slowdown and expectations that U.S. production will fall, “the catalyst driving Brent prices back to our previous forecasts remains unclear,” Morgan Stanley said.
Analysts now see Brent prices falling to $75 per barrel in the fourth quarter, down from a previous forecast of $80 per barrel, and remaining at this level until 2025.
