Morgan Stanley cuts oil price forecasts, sees surplus in H1 2024

Morgan Stanley lowered its oil price forecasts, predicting a market surplus in the first half of 2024 with non-OPEC supply growing faster than demand next year.

The Wall Street bank cut its Brent price outlook for the third quarter this year to $75 from $77.50 per barrel and lowered its fourth quarter forecast to $70 from $75.

It also cut its forecasts for 2024 by $5, and now sees prices at $70 in the first quarter, at $72.50 in the second, and at $75 and $80 for the final two quarters, respectively.

“Despite low investment, non-OPEC+ supply has been growing robustly and supply from Iran and Venezuela has been creeping higher. We still model stock draws in Q3, but expect oil price softness to continue as the market’s focus shifts to H1 2024 when balances look in surplus,” the bank said in a note.

Benchmark Brent crude LCOc1 was trading around $75.79 a barrel, as economic slowdown concerns erased some gains made after Saudi Arabia and Russia announced fresh output curbs. O/R

Those reductions were in addition to cuts by members of the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia.

However, inventory drawdowns in the third quarter led by the OPEC cuts could keep Brent supported in the mid-$70 levels, the bank said.

“Much depends on additional voluntary cuts from key OPEC members, but in our base case scenario the market loosens in Q4 and turns into surplus in H1 2024.”

Additionally, if U.S. crude futures CLc1 go to the mid-to-low $60s, “around 30% of shale wells would be ‘out of the money’,” likely driving a reduction in U.S. output growth, and in turn, providing further support to Brent prices in the high $60s, the Morgan Stanley analysts added.