Amid the oil supply glut, Morgan Stanley cut its forecasts this week for Brent crude prices in the second half of 2026, arguing that the oil market is facing a growing supply-demand imbalance that could push prices lower in the coming months.
The investment bank warns that the combination of a faster-than-expected recovery in oil flows through the Strait of Hormuz, the OPEC+ agreed production increase, and weaker-than-expected global demand is creating a structural surplus scenario that the market has not yet fully priced in.
Downward revision to crude oil price forecasts
Morgan Stanley analysts adjusted their estimate for Brent to a range of $65–$70 per barrel for the third quarter of 2026, below their previous projection of $72–$78. The revision mainly reflects the return of volumes that had been held back by tensions in the Persian Gulf region during the first half of the year.
According to the bank’s report, flows through the Strait of Hormuz normalized faster than the market anticipated, removing the geopolitical risk premium that had kept prices above $75 for several consecutive months.
“The speed at which traffic through Hormuz has normalized has surprised the market. This, combined with OPEC+’s decision to continue increasing production, creates an environment of higher supply that will reach the market just as seasonal demand in the Northern Hemisphere begins to slow,” the report cited by Bloomberg notes.
Demand: China and Europe under pressure
Morgan Stanley’s analysis identifies two areas of weakness in global demand. First, China, where growth in crude imports came in below consensus projections in the second quarter of 2026, affected by a slowdown in its industrial sector and a faster shift toward electric vehicles that reduces gasoline consumption.
In Europe, the combination of greater energy efficiency, expansion of renewable energy, and industrial activity below potential has limited growth in oil consumption. The region imports less crude in relative terms than it did five years ago, a trend Morgan Stanley expects to solidify over the medium term.
“We are seeing a convergence of negative factors for prices: more supply, less demand from major consumers, and a lower geopolitical premium. It’s the perfect combination for a bearish market,” explained a senior analyst at the bank cited by Rigzone.
Implications for OPEC+ and independent producers
Morgan Stanley’s projections come at a complex time for the OPEC+ alliance, which will meet in the coming days to decide on new production increases for August. The bank warns that if the alliance confirms another increase, the market could build a surplus of between 1 and 1.5 million barrels per day in the third quarter, putting additional pressure on prices.
For independent producers and companies with greater exposure to spot crude prices, the scenario projected by Morgan Stanley poses a challenge to their investment plans. Several mid-sized operators in the United States have already begun revising their capital budgets for the second half of the year, anticipating tighter margins.
The U.S. Energy Information Administration (EIA) also recently published a downward revision to its WTI projections, although to a lesser extent than Morgan Stanley’s, suggesting that the bank’s bearish view is at the more pessimistic end of the current analytical spectrum.
Medium-term outlook
Despite the adverse short-term scenario, Morgan Stanley maintains a more balanced view for the first half of 2027, when it expects Northern Hemisphere winter seasonal demand and a possible moderation in OPEC+ production to restore some of the market’s lost balance.
The bank recommends that investors take a defensive positioning in the energy sector during the third quarter, favoring companies with low production costs and strong balance sheets that can withstand a prolonged period of depressed prices without compromising their dividends or growth plans.
