(Reuters) – Morgan Stanley on Monday cut its forecasts for the coming quarters, saying the global oil market is facing a period of demand weakness 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 as of 1026 GMT. [O/R]
Rising fuel inventories, lower refining margins and the differences between the price now and the price in the future all echo previous recessionary periods or other moments of weak demand, Morgan Stanley said.
These include periods of declining 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 with non-recession periods of moderate demand and higher supply in 2013 and in 1992-1993, the bank said.
The bank explored the possibility that oil prices could act as a recession indicator, but concluded it was too early and acknowledged that the market was pricing in a significant deterioration in the balance between supply and demand.
Seasonal demand typically declines after the summer, and supply from both OPEC and non-OPEC sources is likely to accelerate again in the fourth quarter and 2025, leading to a shift in the supply-demand balance, the report said. bank.
However, the Organization of the Petroleum Exporting Countries and allies led by Russia, a group known as OPEC+, is focused on balancing the market, as evidenced by its decision to postpone production increases that were due to begin in October, it added the bank to it.
Morgan Stanley expects oil markets to remain tight in the third quarter, move closer to equilibrium 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 per barrel to $75, a level it now sees for all quarters next year. Brent was previously forecast to average $78 in the first quarter of 2025 and fall steadily over the year to $75 in the fourth quarter.
Through the fourth quarter of 2025, the company expects WTI prices to be at $70 per barrel.
“While rising OPEC production is a key factor behind the surplus we model for 2025, we would hesitate to argue that it justifies the recent price decline,” the report said, adding that the market appears modestly oversold in the near term.
Unless demand weakens further, Brent is likely to remain anchored around the mid-70s, it added.
