Morgan Stanley says all oil signs point to tightnessBrent is higher, Morgan Stanley said in a note on Thursday, and all signs point to tightness in crude oil, with prices supported at current levels.
“Not only has the Brent flat price risen, but calendar spreads have risen, refining margins are unusually strong, the CFD curve is deeply in backwardation and physical differentials are elevated,” Morgan Stanley said, adding that fundamentals “tell a similar story,” with robust demand growth and falling inventories.
According to MS, the oil market is currently undersupplied by about 1 million barrels per day, with inventories suggesting an undersupply of 1.3 million bpd so far this quarter. The undersupply, coincidentally or not, is pretty close to the amount of OPEC production cuts this quarter compared to Q2.
That supply cut was almost entirely made by OPEC heavyweight Saudi Arabia, as Morgan Stanley points out.
As such, OPEC, and Saudi Arabia in particular, are “key” to the oil market outlook.
Morgan Stanly’s new Brent price forecast for Q4 this year is $95 per barrel, up from $82.50. Its forecast for Q1 2024 is $92.50 per barrel, up from an estimate of $80 in its previous outlook. This outlook is based on the assumption that Saudi Arabia will continue its voluntary production cuts until March 2024, that the undersupply will continue until early next year, and that a small overall surplus will emerge in Q2 2024-but that the crude oil surplus will continue unabated until the end of next year.