Morgan Stanley sees tighter oil market, raises Brent forecast

[BENGALURU] Morgan Stanley on Tuesday raised its year-end Brent price forecast to US$40 per barrel, citing a faster-than-expected balance in global oil demand and supply as countries ease coronavirus restrictions and major producers cut supply.

"We expect demand to rebound to about 97 million barrels per day (bpd) by Q4 as economies come out of lockdown - a significant improvement although still down about 4 million bpd year-on-year," the bank said.

The bank further expects supply to decline towards year-end across both the Organization of the Petroleum Exporting Countries (Opec) and non-Opec, and said that will lead to an oil market that is 4 million-6 million bpd undersupplied during Q4 2020 and Q1 2021.

The Opec and producers including Russia, a group known as Opec+, agreed last month to cut their combined output by almost 10 million bpd in May-June to support prices at a time when pandemic quarantines have slashed fuel demand.

"Now that the rebalancing has been set in motion, we expect it to continue. Our base case forecasts call for a further tightening of the oil market over the next few quarters," it said.

The bank, however, said the recent rebalancing was mostly supply rather than demand-driven with the rise in crude prices compressing refining margins even further and inventories of oil products rising fast relative to crude oil stocks.

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The bank also raised its Q3 Brent price forecast to US$35 per barrel from US$30, and Q4 to US$40 per barrel from US$35, but maintained its long-term forecast for the global benchmark at US$45 per barrel.

Oil prices rose on Tuesday, supported by signs that producers are following through on commitments to cut supplies and as fuel demand picks up with the easing of lockdown curbs.

REUTERS