The truth about the oil market? Morgan Stanley: OPEC production increase is only nominal, spare capacity is even lower, and real demand is stronger.
```
The global oil market may have been blinded by "fake data" for years. Morgan Stanley's latest research report reveals that OPEC's production boost may just be a numbers game, with actual spare capacity far lower than imagined, while strong demand that has been overlooked is quietly rewriting the future direction of oil prices.
On October 18th, according to news from Chasing Wind Trading Desk, Morgan Stanley's latest research report reveals a shocking phenomenon in the oil market: there is an unprecedented huge divergence in OPEC crude oil production estimates among major data providers, with a gap of up to 2.5 million barrels/day.
The chief analyst Martijn Rats' team at Morgan Stanley points out through in-depth analysis that if more accurate production data is used, three subversive conclusions follow: OPEC's production increase plans are in name only, actual spare capacity is much lower than expected, and global oil demand is much stronger than generally recognized.
According to the report, first, OPEC's announced production increases may be more illusion than reality—the quota increases are merely catching up with already existing actual production, rather than actually releasing new additional supply. Second, this means OPEC's real spare capacity is far below general expectations, currently only about 2.9 million barrels/day, a historically low level. Most crucially, if OPEC's output is indeed underestimated and this oil did not enter observable inventories, then there is only one reasonable explanation—global oil demand and its growth are also being systematically underestimated.
Based on these findings, Morgan Stanley adjusted its outlook: although short-term supply surplus pressures will still drag oil prices down, stronger potential demand and limited supply growth mean that the oil market may rebalance in the second half of 2027, when Brent crude oil is expected to rebound to $65/barrel.
OPEC Production Data Muddle: Record-High Discrepancies
The report states that the core contradiction in the oil market lies in an increasingly difficult issue—the reliability of OPEC's production data.
Morgan Stanley tracked six professional data providers—Argus, U.S. Energy Information Administration, Energy Aspects, International Energy Agency, Rystad, and S&P Global Commodity Insights—whose estimates of OPEC crude oil production deviated only by 400-500 thousand barrels/day during 2020-2022. But this started to diverge in early 2023, and by 2025, the difference had grown to a routine excess of 1.5 million barrels/day.
What’s more striking is that when Petro-Logistics data is added, the divergence widens further. In September 2025, the difference between the highest and lowest estimates reaches 2.5 million barrels per day—this number is equivalent to Morgan Stanley's forecasted 2026 market surplus, far from a negligible statistical margin of error.
After consulting many physical oil market participants, Morgan Stanley received a surprising response: most market insiders consider Petro-Logistics’ estimates "the most accurate." This institution has specialized in OPEC production estimates for over 45 years, relying on a vast information network, satellite tanker tracking, government reports, and provides transparent data methodology.
Morgan Stanley stated that if Petro-Logistics' higher estimate is indeed closer to the truth, this will fundamentally change market understanding of OPEC's capacity, market demand, and rebalancing trajectory.
The Truth About OPEC's Production Increase: Quotas Chasing Actual Output
Morgan Stanley notes that OPEC's production increase plans look completely different in this context.
In March this year, OPEC announced it would start lifting production cut quotas totalling 2.2 million barrels per day and completed this process in September. Afterwards, OPEC began to lift a further layer of 1.65 million barrels/day of production cuts at a pace of 137,000 barrels/month, to be completed in September 2026.
This rapid easing of cuts is surprising, especially when most analysts (including Morgan Stanley) have forecast a major surplus in coming quarters. However, Petro-Logistics data shows:
This production already exists. September 2025 production has already exceeded the implied production after the full removal of the 1.65 million barrels/day cuts.
In other words, Morgan Stanley states, if this data is accurate, OPEC's lifting of cuts doesn't really increase output, but only allows quotas to catch up with actual production. This is already apparent:
Between March and September, despite removing 2.5 million barrels/day of cuts (including the 300,000 barrels/day baseline adjustment for UAE), OPEC's actual output only increased by about 850,000 barrels/day.
Spare Capacity Far Below Expectations
Spare capacity is an important "safety cushion" for oil markets, determining OPEC's ability to cope with supply disruptions or demand surges.
Morgan Stanley believes that if OPEC's actual production is higher than what most data providers show, then its spare capacity and supply growth potential may also be much lower.
Their report points out that using IEA estimates of OPEC's capacity, combined with Petro-Logistics' latest production data, OPEC's current spare capacity is about 2.9 million barrels/day — a relatively low historical level.
Morgan Stanley data shows 2.9 million barrels/day of spare capacity is only about 2.8% of global oil consumption, while a historically healthy range is 4-5 million barrels/day.
Morgan Stanley believes this holds major implications for the supply outlook over the short and medium term. In the long run, OPEC nations can expand capacity by further investments, but within the 2026-2027 timeframe, current spare capacity basically determines possible output growth.
If this buffer is indeed limited, expectations for OPEC's large-scale production capacity may be too optimistic.
Real Demand May Be Systematically Underestimated
Morgan Stanley emphasizes in the report that the most important finding is: if OPEC output is indeed higher, it may mean oil demand—and demand growth—is stronger than widely believed.
On the surface, the higher OPEC output estimated by Petro-Logistics seems bearish for oil prices, since it implies greater supply. But this ignores a key dynamic: where did the extra oil go?
At a global level, imports and exports offset each other, so there are only two possibilities: 1) it has been consumed, meaning demand is also underestimated; 2) it is being stored in facilities we cannot observe.
Morgan Stanley's analysis shows that unobserved storage is unlikely to be the full explanation. Since early 2023, the cumulative difference between IEA and Petro-Logistics’ OPEC output estimates has reached 820 million barrels of crude, equal to 15% of global observable crude stocks (5.6 billion barrels), and double the entire U.S. Strategic Petroleum Reserve.
Morgan Stanley believes, the accumulation of such massive inventories in such a short time would not go unnoticed by oil markets. Since the mid-1980s, OECD countries have had reliable stockpile data, and non-OECD countries’ satellite data are now quite mature. All these indicate that most of these 820 million barrels haven't been stored but consumed.
The report states that this inference is not sheer speculation. The oil market is vast, and there are real data blind spots.
The current difference between IEA and Petro-Logistics OPEC output estimates is about 1% of global oil demand. Considering that Russia and most of the Middle East and Africa report little oil consumption data, it is quite possible that about 1% of demand is "missing."
In fact, just among major data providers’ estimates of H1 2025 global oil liquids demand, Argus puts it at 102.3 million barrels/day, while S&P Global Commodity Insights estimates 105 million barrels/day—a gap of 2.7 million barrels/day.
Demand Growth Trend Possibly Stronger
Morgan Stanley points out that more crucially, this divergence in production estimation is not static, but widening. Before 2023, the gap between IEA and Petro-Logistics was very small, but since early 2023, this gap has been expanding by 360,000 barrels/day per year on average.
According to the report, if most of this oil is being consumed rather than stored, this suggests the hypothesis that oil demand growth might also be higher—by around 360,000 barrels/day per year.
Two background facts support this:
First, refining margins have been strong. This year, refining profits have been generally robust. Although this is mostly due to refinery shutdowns, outages, and logistics bottlenecks, at these profit levels, refiners have ample incentive to process as much crude into products as possible. Such market conditions are unlikely to occur historically if demand were "weak" instead of at least "reasonable."
Second, global refinery throughput growth has slowed abnormally. Aside from about 1 million barrels/day of direct crude use, refinery throughput is most of "crude demand." Data shows that in the 10 years before COVID (and even for 20-30 years before that), refinery processing grew steadily by about 1 million barrels/day per year. However, since early 2023 (precisely the point when OPEC production estimates began to diverge), throughput growth has slowed sharply to just 540,000 barrels/day per year.
Morgan Stanley: Oil Market Short-Term Pressure, Mid-Term Rebalance
Morgan Stanley admits that the above analysis is not precise science, but with data this divergent, this is the reality we must confront.
Short-term pressure: Non-OPEC production is experiencing major expansion, and OPEC is also increasing supply (though perhaps by less than quotas suggest).
At the same time, as robust summer travel demand ends, demand typically weakens in this season. Taken together, these factors still point to a sizeable surplus; Morgan Stanley estimates Q4 2025 at about 2-2.5 million barrels/day, rising in H1 2026 to about 3 million barrels/day.
Given that recent non-OPEC supply growth and global stock builds have been slightly stronger than anticipated, Morgan Stanley has slightly reduced its near-term Brent oil price forecast.
Improved medium- and long-term outlook: Morgan Stanley says the real significance of the above discussion is in the period that follows.
Non-OPEC growth may end after Q1 2026. Morgan Stanley's previous research identifies many new fields coming online in 2025, but the list is much shorter for 2026. If OPEC production is already higher, it is expected to remain roughly stable in 2026 as well. This means the current strong supply trend should not simply be extrapolated forward.
Demand trends, however, may be different. If the discussion above holds, it implies underlying demand trends are actually fairly robust. If the H1 2026 supply surplus leads to further price declines, this would help ease inflation, support the global economy, and potentially boost oil demand. Unlike supply trends, demand trends might be able to be projected forward.
This combination points to a possibly very large supply surplus in H1 2026, but a slow rebalance starting to materialize thereafter. Morgan Stanley expects the oil market may return to balance around the second half of 2027, introducing a $65/barrel Brent crude oil price forecast.
~~~~~~~~~~~~~~~~~~~~~~~~
The above content is from Chasing Wind Trading Desk.
For more detailed interpretations including real-time analysis and frontline research, please join Chasing Wind Trading Desk · Annual Membership
Risk Warning and DisclaimerThe market involves risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take special investment objectives, financial circumstances, or needs of individual users into consideration. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Investment is at your own risk. ```