Morgan Stanley Expects Brent to Hike by Summer 2024

Morgan Stanley raised its Brent oil price forecasts by US$10 per barrel to US$90 for the third-quarter of 2024, citing tighter supply and demand balances on OPEC+ commitment and Russia's oil production curtailments after recent drone attacks on its refineries.

Morgan Stanley lowered its supply forecast for OPEC and Russia by 0.2-0.3 million barrel per day (bpd) for 2Q/3Q as it sees a modest deficit in second quarter, increasing to a larger deficit in the third quarter.

The bank also hiked its first-quarter Brent price outlook to US$85 per barrel from US$82.5, second-quarter forecast to US$87.5 from US$82.5 and for the fourth quarter it sees prices at US$85 versus US$80 previously.

Oil benchmark Brent hovered just under the US$86 a barrel mark on Monday. Prices have been supported as Ukraine has stepped up attacks on Russian oil infrastructure since the start of the year, hitting numerous large oil refineries in an attempt to cripple Russia's military.

"These attacks probably mean that some oil production may still need to be reduced. As a result of this, combined with the OPEC+ commitment, we have reduced our oil production forecast for Russia for 2Q and 3Q by ~0.2 million bpd as well."

Morgan Stanley is also of the view that instead of a geopolitical risk premium, there is actually still a small discount in the Brent price for the risk that OPEC cohesion deteriorates.

"Every month that OPEC discipline remains in-place, Brent flat price will likely continue to catch up with where inventories and time spreads already are."

OPEC+ members led by Saudi Arabia and Russia earlier this month agreed to extend voluntary oil output cuts of 2.2 million bpd into the second quarter.

Morgan Stanley still expects oil demand to grow at 1.5 million bpd this year, slightly above historical trend growth, driven by jet fuel and petchem, and regionally by China and India.