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Morgan Stanley Raises Oil Forecasts

Morgan Stanley Raises Oil Forecasts

Morgan Stanley raised its Brent crude price projections for the third and fourth quarters by $10 a barrel, citing a larger-than-expected supply imbalance led by Russia and Iran.

According to a note dated April 21, the bank boosted its third-quarter projection to $130 a barrel and expected that a supply imbalance of around 1 million barrels per day would persist throughout the year. While there are short-term demand difficulties in the oil markets, they are exceeded by supply issues, according to the report.

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Because of a global boycott of Russian petroleum and condensate following Moscow’s invasion of Ukraine, Morgan Stanley boosted its prediction for daily Russian crude and condensate output losses to 2 million barrels, up from 1 million barrels. Despite diplomatic efforts for a cease-fire, the war is approaching its third month.

Brent Forecast 

($/Bbl)

3Q 2022 4Q 2022 2023
New 130 120 105
Previous 120 110 100
Change +10 +10 +5

According to Morgan Stanley analysts Martijn Rats and Amy Sergeant, Russian production has already dropped by around 900,000 barrels per day in the first half of April, much faster than predicted. The bank also stated that there is a “high possibility” that the European Union will impose a Russian oil import restriction.

Morgan Stanley lowered its expectations for recovering Iranian supplies, citing the protracted negotiations that have yet to yield a nuclear deal. Flows were predicted to increase by around 1 million barrels per day between mid- and end-2022, but that prediction has been reduced to 500,000 barrels per day. According to the bank, the chances of reaching an agreement are currently 50/50.

Morgan Stanley reduced its prediction for oil demand growth this year from 3.4 million barrels per day to 2.7 million barrels per day. In the short term, negative GDP revisions, the effects of China’s Covid Zero policy, and a substantial release from the US Strategic Petroleum Reserve are all weighing on the market.

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