Morgan Stanley cut oil forecasts for the second time in about two weeks as flows through the Strait of Hormuz return faster than expected, while strong US supply and weak Chinese demand raise the risk of a glut.
Dated Brent - a benchmark for physical transactions - is expected to average $75 a barrel in the third and fourth quarters, down by $15 and $5 respectively, analysts including Martijn Rats said in a note. Outlooks for all four quarters of next year were also cut, with Dated seen 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, which followed 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 - the global benchmark - have collapsed about 30% this quarter as the US and Iran reached an interim peace that's allowed some traffic through Hormuz to resume. The rapid shift has prompted analysts to revisit their forecasts, with Goldman Sachs Group Inc. also paring its outlook.
While traffic in the chokepoint slowed over the weekend after a flare-up that saw two ships hit, there were still indications tanker companies are willing to navigate Hormuz. That's a critical step toward returning the global market to normal and unlocking millions of barrels of supply from the region.
Morgan Stanley said it counted 35 oil and gas tankers exiting the Persian Gulf through the strait on Thursday - the first time the level returned to the 30-to-40 range typical before the conflict started in February. To balance the oil market in 2027, flows through Hormuz need to recover to only about 65% of the pre-conflict level, or about 11-to-12 million barrels a day, the bank said.
Brent futures, which rose to a peak above $126 in April, have erased their war-time gains as Iran and the US continue talks aimed at permanently ending the war. The most-active September contract traded at $73.47 on Tuesday.
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