Morgan Stanley has lowered its oil price forecast for the second time in a fortnight, citing a quicker-than-anticipated resumption of oil flows through the Strait of Hormuz, alongside robust U.S. supply and weak demand that heighten the risk of a supply glut.
Analyst Martijn Rats stated in a report that the physical crude benchmark, Dated Brent, is now projected to average $75 per barrel in both the third and fourth quarters, marking reductions of $15 and $5, respectively. The bank also revised down its price expectations for all four quarters of next year, forecasting Dated Brent to decline to $70 per barrel by the end of 2027.
The analysts noted, "The Strait has reopened faster than expected, and the twin headwinds of elevated U.S. exports and soft Chinese imports remain. As the focus shifts to 2027, the market has completed a full cycle, returning once more to a state of oversupply."
This follows a similar downgrade from Morgan Stanley in mid-June. The global benchmark Brent crude futures have plunged approximately 30% this quarter after a provisional peace agreement between the U.S. and Iran paved the way for the Strait's reopening. This rapid shift has prompted analysts to reassess their outlooks, with Goldman Sachs Group also lowering its forecasts.
Goldman Sachs has cut its Brent crude forecast for the fourth quarter of 2026 to $80 per barrel from $90, and lowered its average 2027 forecast to $75 from $80.
Although shipping through the Strait slowed over the weekend due to attacks on commercial vessels, there are indications that tanker companies are willing to continue voyages. This is a crucial step towards normalizing global markets and releasing millions of barrels of crude oil from the region.
Morgan Stanley reported that 35 oil and gas carriers transited the Strait of Hormuz out of the Persian Gulf last Thursday. This marks the first time the daily vessel count has returned to the pre-conflict normal range of 30 to 40 ships per day since the conflict began in February.
The bank pointed out that to achieve oil market balance by 2027, oil flows through the Strait of Hormuz only need to recover to about 65% of pre-conflict levels, equating to roughly 11 to 12 million barrels per day.
Brent crude futures had surged to highs above $126 per barrel in April but have since erased all the war-related gains as Iran and the U.S. continue negotiations aimed at a permanent end to hostilities. On Tuesday, the most actively traded September contract was priced at $73.47 per barrel.
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