Morgan Stanley sees crude boost this summer but supply surpluses into 2025 (NYSEARCA:USO)

U.S. crude oil prices rose marginally on Tuesday, as the U.S. Energy Information Administration raised its global oil demand growth forecast for 2024 while OPEC maintained its outlook for relatively strong growth this year.

In its latest Short-Term Energy Outlook, the U.S. Energy Information Administration raised its forecast for 2024 world oil demand growth to 1.1M bbl/day from its previous estimate for a 900K bbl/day increase, while lowering its 2024 estimates for benchmark crude prices by ~4%.

The EIA said it sees spot Brent averaging $84.15/bbl in 2024, down from its previous forecast of $87.79/bbl, and WTI averaging $79.70/bbl, vs. its previous view of $83.05, but it forecast Brent rising to $85/bbl in this year’s H2, as OPEC+ extends voluntary production cuts through Q3.

“Although crude oil prices initially fell following the OPEC+ announcement, we expect the extension of all voluntary cuts through 3Q24 will cause global oil inventories to continue falling through 1Q25 and put upward pressure on oil prices over that period,” the EIA said in its report.

Meanwhile, OPEC+ said in its monthly report that continues to forecast oil growth demand this year at 2.2M bbl/day and next year at 1.8M bbl/day, unchanged from last month’s outlook, with non-OPEC+ supply seen rising by 1.2M bbl/day in 2024 and 1.1M bbl/day in 2025, both the same as estimated in May.

Front-month Nymex crude (CL1:COM) for July delivery closed +0.2% to $77.90/bbl, and front-month August Brent crude (CO1:COM) closed +0.3% to $81.92/bbl.

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Morgan Stanley analysts said they expect Brent crude prices will rise by ~$5/bbl this summer but warned that a trend toward tightening supply in the next three months will give way to surpluses toward year-end 2024 and into 2025.

Once Q3 ends, the bank sees seasonal tailwinds turning into seasonal headwinds, noting refined product demand tends to drop by an average 3.9M bbl/day in the September-through-January period, making for a difficult environment to rally.

Morgan Stanley’s pricing deck for Brent crude indicates $86/bbl in Q3, easing to $85/bbl in Q4 before sliding to $81/bbl at the start of 2025 and $76 by the end of next year.

Without further action by OPEC+, Morgan Stanley analysts believe 2025 will see a “persistent” surplus.