Morgan Stanley Cuts Brent Price View as Hormuz Flows Recover, Flags 2027 Surplus

Morgan Stanley lowered its Brent crude price forecast for the rest of the year and next, citing a faster-than-expected reopening of the Strait of Hormuz, and said market focus has shifted back to a larger surplus expected in 2027.

The bank lowered its third-quarter 2026 forecast and fourth-quarter 2026 view to US$75 per barrel from earlier estimates of US$90 and US$80, respectively. It sees Brent at US$75/bbl in the first half of 2027 and US$70/bbl in the second half, compared with an earlier forecast of US$80.

With the Middle East exports ramping up again, a supply shortfall that has been rapidly diminishing is now causing a surplus in the Brent and Dubai markets, the bank said in a note dated Monday.

Morgan Stanley now projects an implied global oil market surplus of 4.8 million barrels per day (bpd) in 2027. At the start of 2026, before the conflict, its balances had pointed to a 2 million–3 million bpd surplus for the year and the closure of the Strait of Hormuz temporarily flipped that surplus into a deep deficit.

To balance the market in 2027, flows through Hormuz only need to recover to 11 million-12 million bpd, or ~65% of the pre-conflict level, analysts at the bank estimated.

This is the bank's second price reversion since the announcement of U.S.-Iran agreement to halt the war in Iran and open the Strait of Hormuz earlier this month.

Iranian and U.S. negotiating teams were due in Doha this week, but Iran said on Monday no meeting had been scheduled as weekend missile fire from both sides tested the interim ceasefire to end the four-month-old war.

Oil prices dipped on Tuesday and were poised for a third consecutive monthly decline, setting them for their worst quarter since early 2020.

Brent August crude futures were down 0.9% at US$72.47 a barrel, as of 0706 GMT, while U.S. West Texas Intermediate for August fell 0.5% to US$70.24 a barrel.