Morgan Stanley cuts oil price forecast again as Strait of Hormuz flows recover, warns of glut

Morgan Stanley has cut its oil forecasts for the second time in the span of two weeks after flows through the Strait of Hormuz returned to normal faster than it was earlier anticipated while US supplies are strong but the demand in weak in China, thus raising the risk of a possible oil glut in the global market.

Dated Brent, which is a benchmark for physical transactions, will likely average $75 a barrel in the 3rd as well as 4th quarters, thus going down by $15 and $5, respectively, as per analysts like Martijn Rats, Bloomberg reported. Outlooks for all the four quarters of the next financial year have also been cut, and Dated is predicted to be at $70 at the end of 2027.

“The Strait is reopening faster than expected, yet the ‘twin solvers’ of high US exports and low Chinese imports remain in place,” they said in the note as per Bloomberg, which comes after an earlier round of reductions in a mid-June report. “As attention turns to 2027, the market has come full circle – back to surplus.”

Brent futures, which is the global oil benchmark, have fallen around 30% this quarter amid the US and Iran reaching a peace deal to end hostilities and allowing traffic to resume through the Strait of Hormuz. This shift has encouraged analysts to re-evaluate their forecasts, as Goldman Sachs Group Inc. also pared its outlook.

Over the weekend there was a hiccup in traffic at the Hormuz chokepoint as another flare up between the US and Iran led to two ships being hit. However, there were still indications that tanker companies were willing to navigate the strait. This is a critical step in making sure the global market returns to normal, thus also unlocking millions of barrels of oil supply from the region.

Morgan Stanley has said that on Thursday, 35 oil and gas taken passed through the Persian Gulf using the Strait of Hormuz, which was the first time since the conflict started in February that the level returned to its typical 30-40 range. In order to balance the oil market in 2027, flows through the strait will have to return to around 65% of the pre-conflict level, which is around 11-to-12 million barrels per day, Bloomberg quoted the bank as saying.

Brent futures, which reached a high of above $126 in April, erased their war-time gains as Iran and the US continue talks to bring about a permanent end to the conflict. Morgan Stanley has cut its oil forecasts for the second time in the span of two weeks after flows through the Strait of Hormuz returned to normal faster than it was earlier anticipated while US supplies are strong but the demand in weak in China, thus raising the risk of a possible oil glut in the global market.

Dated Brent, which is a benchmark for physical transactions, will likely average $75 a barrel in the 3rd as well as 4th quarters, thus going down by $15 and $5, respectively, as per analysts like Martijn Rats, Bloomberg reported. Outlooks for all the four quarters of the next financial year have also been cut, and Dated is predicted to be at $70 at the end of 2027.

“The Strait is reopening faster than expected, yet the ‘twin solvers’ of high US exports and low Chinese imports remain in place,” they said in the note as per Bloomberg, which comes after an earlier round of reductions in a mid-June report. “As attention turns to 2027, the market has come full circle – back to surplus.”

Brent futures, which is the global oil benchmark, have fallen around 30% this quarter amid the US-Iran reaching a peace deal to end hostilities and allowing traffic to resume through the Strait of Hormuz. This shift has encouraged analysts to re-evaluate their forecasts, as Goldman Sachs Group Inc. also pared its outlook.

Over the weekend there was a hiccup in traffic at the Hormuz chokepoint as another flare up between the US and Iran led to two ships being hit. However, there were still indications that tanker companies were willing to navigate the strait. This is a critical step in making sure the global market returns to normal, thus also unlocking millions of barrels of oil supply from the region.

With agency inputs