Morgan Stanley sees Brent at $60/bbl by early next year

Morgan Stanley forecasts Brent crude will retrace to approximately $60 per barrel by early next year, attributing this outlook to a well-supplied market, abating geopolitical risks following Israel-Iran de-escalation, and robust non-OPEC supply growth of 1 million barrels per day annually through 2025-26. The bank anticipates a significant oversupply of around 1.3 million bpd by 2026 as OPEC+ unwinds production cuts, despite recent marginal increases in analyst price forecasts due to Middle East tensions. This bearish outlook suggests continued downward pressure on crude prices, with Brent settling at $67.61/bbl on Monday.

Analysis

Morgan Stanley projects a significant retracement for Brent crude to approximately $60 per barrel by early next year, a notable drop from its current settlement of $67.61. This bearish outlook is predicated on a confluence of factors, including the abatement of geopolitical risk premiums following the de-escalation between Israel and Iran and the expectation of a well-supplied market. The bank highlights robust non-OPEC supply growth, forecasting an addition of 1 million barrels per day (bpd) annually through 2025-26, which it deems sufficient to meet demand growth. Compounding this supply-side pressure is the continued unwinding of production cuts by OPEC+, which recently agreed to a 411,000 bpd increase for July, contributing to an expected market oversupply of approximately 1.3 million bpd by 2026. While a separate Reuters poll indicates other analysts have marginally lifted their price forecasts due to recent Middle East tensions, it also acknowledges that rising OPEC+ supply and a tempered demand outlook remain significant headwinds for crude prices, broadly aligning with the bearish sentiment.

Key Decisions for Investors

• Given Morgan Stanley's forecast for a material decline in Brent prices, investors with long positions in crude oil or related ETFs like BNO and USO should consider hedging their exposure or reducing positions.
• Closely monitor upcoming OPEC+ production announcements and non-OPEC supply data, as these are the core drivers of the bearish thesis and any deviation from the expected 1 million bpd growth could alter the oversupply scenario.
• Acknowledge that the forecast's reliance on de-escalating geopolitical tensions presents a key risk, as a flare-up in the Middle East could rapidly invalidate the bearish outlook and cause a sharp reversal, posing a significant risk to short positions.