Morgan Stanley Revises Oil Price Forecasts Downward Amid Global Supply Glut Concerns

Morgan Stanley has lowered its oil price forecasts for the second time in roughly two weeks, citing a quicker-than-expected resumption of oil transit through the Strait of Hormuz and robust U.S. supply, which heighten the risk of a global supply surplus.

Analysts, including Martijn Rats, stated in a report that they now anticipate the average spot Brent crude price for the third and fourth quarters to be $75 per barrel, marking reductions of $15 and $5 respectively from prior projections. Price forecasts for all four quarters of next year have also been cut, with expectations for a decline to $70 per barrel by the end of 2027.

"The Strait reopened faster than anticipated, while the 'dual regulators' of high U.S. exports and low Chinese imports persist," the analysts noted in the report. "As the focus shifts to 2027, the market has come full circle and is returning to a state of oversupply."

Brent crude futures have plunged approximately 30% this quarter, following a partial restoration of shipping through the Strait of Hormuz after a provisional peace agreement between the U.S. and Iran. This shift has prompted analysts to reassess their outlooks, with Goldman Sachs also revising its oil price forecasts lower.

Although traffic through the Strait of Hormuz slowed after attacks on two vessels over the weekend escalated tensions, there are indications that tanker companies and crews remain willing to navigate this strategic chokepoint. This represents a crucial step toward normalizing the global oil market and releasing millions of barrels of oil from this resource-rich region.

Morgan Stanley reported that 35 oil and gas carriers transited the Strait of Hormuz out of the Persian Gulf on Thursday, marking the first time since the conflict erupted in February that the vessel count has returned to the normal range of 30 to 40. The firm noted that for the oil market to achieve balance by 2027, oil flows through the Strait of Hormuz need only recover to about 65% of pre-conflict levels, equating to roughly 11 to 12 million barrels per day.