Morgan Stanley lowers oil price forecast again: market to return to oversupply in 2027

Morgan Stanley has cut its crude oil price forecast for the second time in about two weeks, warning the global oil market is accelerating towards oversupply. The reopening of the Strait of Hormuz has outpaced expectations, combined with strong US supply and weak Chinese demand, weighing on the outlook for the oil market. According to Bloomberg, Morgan Stanley analysts including Martijn Rats lowered their physical trading benchmark "Dated Brent" average price forecasts for the third and fourth quarters by $15 and $5, respectively, to $75 per barrel, and simultaneously cut their forecasts for all four quarters next year. They expect the benchmark price will drop to $70 per barrel by the end of 2027. Analysts wrote in the report: "As the market looks toward 2027, the situation has come full circle—back to a state of oversupply." Brent crude futures have already fallen by about 30% this quarter, marking the largest single-quarter drop since 2020. The immediate trigger for this decline was the temporary ceasefire agreement between the US and Iran, with partial resumption of shipping through the Strait of Hormuz. The sharp fall in oil prices has prompted several institutions to revisit their forecasts, with Goldman Sachs also lowering its fourth-quarter Brent forecast to $80 per barrel. Hormuz’s recovery exceeds expectations, supply pressure is concentrated Morgan Stanley pointed out that the speed at which the Strait of Hormuz reopened exceeded earlier expectations, serving as the key driver for the latest forecast downgrade. The report shows that last Thursday, a total of 35 oil and gas tankers exited the Persian Gulf via the strait, marking the first return to the pre-conflict normal range of 30–40 vessels since clashes erupted in February this year. Although two ships were attacked last weekend, causing a brief slowdown, traffic has since rebounded, showing tanker operators’ willingness to continue transiting Hormuz—a key signal regarded as market normalization. Morgan Stanley calculated that to achieve supply-demand balance in the oil market by 2027, the volume passing through Hormuz only needs to return to about 65% of pre-conflict levels, which is about 11–12 million barrels per day. The relatively low threshold means supply pressure is likely to persist. US supply and Chinese demand create “double suppression” Morgan Stanley cited robust US exports and sluggish Chinese imports as “dual suppression factors” for the current oil market, believing that even as the situation in Hormuz stabilizes, these two forces will continue to drag the market down. On Chinese demand, the report described it simply as “sluggish Chinese imports” without making further optimistic judgments, implying demand uncertainty remains an important variable for the market. On Tuesday, the most active September contract for Brent futures was quoted at $73.41 per barrel, having significantly retreated from the April high of over $126, with wartime premiums almost completely exhausted. The US and Iran are still negotiating a permanent ceasefire. Both futures structure and spot signals point to a weakening market Morgan Stanley referenced a number of recent market signals to confirm its judgment of short-term abundant oil supply. Among them, crude oil futures have exhibited a bearish “contango” structure—that is, near-month contracts are priced lower than later contracts, which usually reflect expectations of plentiful current supplies. Additionally, some West African crude shipments have been “priced and sold at distressed levels,” and floating oil storage has increased, further substantiating pressure in the spot market. “Putting aside the narrative and just looking at the prices,” Morgan Stanley analysts wrote, “they paint a picture of a market broadly weakening.” Risk warnings and disclaimers The market carries risks; invest with caution. This article does not constitute individual investment advice and does not take into account any user’s specific investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article fit their particular circumstances. Investment based on this article is at your own risk.