Morgan Stanley expects the oil market to tighten during the third and fourth quarter of 2023, supported by a recovery in demand prompted by China reopening its borders among other factors.
“We see the oil market coming into balance in 2Q and turning tight in 3Q and 4Q, supporting higher prices later this year,” the bank said in a note dated Wednesday, with uncertainties like China’s re-opening, recovery in aviation, risks to Russian supply, slowdown in U.S. shale and the end to SPR releases “turning into tailwinds.”
Although Morgan Stanley predicted Brent prices in the first quarter to remain rangebound around $80-85 per barrel, it saw prices reaching $110 a barrel by the end of the year and noted “the supply ceiling is still not far away and inventories are outright low.”
Benchmark Brent crude was trading around $83.04 per barrel on Thursday, after gaining 3% in the previous session.
“We peg the upside to oil demand in China due to ‘re-opening’ at close to 1 million bpd, to be realised progressively throughout the year,” the bank said, adding it expected the country’s re-opening to also accelerate the recovery in aviation demand.
China scrapped its strict zero-COVID measures last month, lifting lockdowns, removing quarantine and halting regular testing.
Meanwhile, from Feb. 5, the Group of Seven (G7) coalition will impose price caps on Russian oil products to further reduce Moscow’s revenue from energy exports and its ability to finance its invasion of Ukraine.
Morgan Stanley forecast a disruption to Russian oil supply “approaching 1 million bpd from current levels” due to the price caps.
Barclays said on Tuesday it remained “constructive” on oil prices, but cautioned that a worsening in global manufacturing activity could pose a downside risk to its current $98 per barrel Brent price forecast for 2023.