Commodity analysts at Morgan Stanley told clients Monday that they expect Brent crude prices to rise by close to $5/bbl this summer but warned that a trend toward tightening supply in the next three months would give way to surpluses in oil toward year-end and into 2025.
Officially, the bank tweaked Brent targets lower, no longer arguing that a $90/bbl level would be justified in coming months. But analysts do see significant stock draws contributing to a price escalation to $86/bbl for third-quarter Brent, a gain of $4.77/bbl from Monday's September settlement of $81.23/bbl.
Much of the advance should be seasonal in nature, Morgan Stanley said. The bank predicts that global OECD petroleum inventories will decline by about 50 million bbl from end-May into late August, contributing to a 1.2 million b/d overall deficit in the third quarter. The deficit specific to crude might be as large as 2 million b/d, the bank said.
But couched in careful language is an admonition to be careful once the summer ends. Non-OPEC supply growth looks to remain robust and OPEC+ threatens to add barrels in the fourth quarter 2024 and beyond. The bank said it believes that attempts to keep Brent above $80/bbl in 2025 may be futile.
Strong seasonality may be responsible for the fluctuations, Morgan Stanley said. The bank believes that between May and August, global demand for refined products typically rises by 3.2 million b/d. Demand only recently began to exceed supply, and the world is in the "foothills" of the seasonal bounce higher. Inventories built by about 900,000 b/d in March and 1.5 million b/d in April, but the seasonal tide has turned, according to the bank.
But once the third quarter ends, seasonal tailwinds turn into seasonal headwinds. The September-through-January period tends to see a 3.9 million b/d drop in refined product demand, making for a difficult environment to rally, the bank said.
The bank's most serious concern, however, comes in 2025. It sees demand growth of 1.3 million b/d next year, but recently cut its 2024 demand growth estimate by 200,000 b/d to 1.3 million b/d. Non-OPEC liquids supply growth in 2025 should measure 1.5 million b/d and thereby surpass demand growth, according to the bank. If OPEC+ unwinds some of the 2023 cuts, there is the potential for plenty of inventory accumulation in 2025.
Morgan Stanley's pricing deck for Brent suggests $86/bbl in the third quarter, easing to $85/bbl in the fourth quarter. But it sees Brent opening 2025 at $81/bbl and falling to $76/bbl by year's end. West Texas Intermediate is pegged $5/bbl below Brent in the next two quarters with a discount of $3-$5/bbl in 2025. The revisions for Brent amount to cuts of $1.50-$4/bbl.
Morgan Stanley offered an alternative scenario, suggesting that a proactive OPEC+ could push back unwinding production cuts. That might be supportive of $80-$85/bbl. Without action by the cartel, analysts believe 2025 will see a "persistent" surplus.
This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.
--Reporting by Tom Kloza, tkloza@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com
(END) Dow Jones Newswires
06-11-24 1253ET
