Morgan Stanley on Monday raised its Brent crude forecast for the first half of 2026 to $60 a barrel from $57.5, citing the decision by OPEC+ to pause quota hikes in the first quarter of next year and recent U.S. and EU sanctions on Russian oil assets.
The bank expects a “substantial surplus” in the oil market next year, peaking in the second quarter. However, it expects non-OPEC production growth will have slowed by then, and that OPEC production will also not grow significantly in 2026, due to diminished spare capacity, paving the way for the market to balance by the second half of 2027.
OPEC+ on Sunday agreed to a small oil output increase for December and a pause in hikes during the first quarter of next year, as the group takes a cautious stance amid mounting concerns about a potential supply glut.
It has raised output targets by about 2.9 million barrels per day (bpd), roughly 2.7% of global supply, since April.
“The decision to halt quota hikes during 1Q does not materially change our production forecasts but still sends an important signal, i.e. the group is still adjusting supply in response to market conditions,” Morgan Stanley said.
The bank highlighted widening uncertainty in OPEC production data, noting that the spread between the lowest and highest estimates has regularly topped 2.5 million bpd this year.
Although OPEC+ has announced production increases of 2.6 million bpd from March, the bank’s best estimates suggest production has only increased by 0.5 million bpd.
The United States this month hit Russian oil majors Rosneft and Lukoil with sanctions, while the European Union adopted a separate package of Russia sanctions.
Brent crude futures were trading around $64.61 a barrel on Monday, while U.S. West Texas Intermediate stood at $60.80.
(Reporting by Sherin Elizabeth Varghese, Anmol Choubey and Kavya Balaraman in Bengaluru, Editing by Louise Heavens and Conor Humphries)