Key Takeaways
Morgan Stanley slashed its Brent crude forecast by $15 a barrel in two weeks, warning a global supply glut is building for 2027.
The swift reopening of the Strait of Hormuz has flipped the oil market narrative from supply scarcity to surplus risk, with Morgan Stanley cutting its Brent crude forecast for the second time in two weeks and warning prices could slide to $70 by the end of 2027.
"The market has come full circle and returned to a state of oversupply," said Martijn Rats, an analyst at Morgan Stanley, in a note dated June 30.
The bank now expects Dated Brent to average $75 a barrel in both the third and fourth quarters of 2026, down $15 and $5 from its prior estimates. Hong Kong-listed energy stocks tumbled on the news, with PetroChina falling 4.44% and CNOOC dropping 4.08%. Brent crude futures have lost roughly 30% this quarter, sliding from an April high of $126 to around $73.
The downgrade reflects a faster-than-expected recovery in tanker traffic through the Strait of Hormuz — 35 vessels transited the chokepoint on June 25, the first time daily volumes returned to the pre-conflict normal of 30 to 40 — combined with robust U.S. supply and weakening Chinese demand. If the strait maintains current transit efficiency, Morgan Stanley estimates that even a partial recovery to about 65% of pre-conflict flows would be enough to push the market into oversupply next year.
Strait Transit Rebounds Faster Than Forecast
The core driver behind the rapid revision is shipping data tracked by Morgan Stanley showing that as many as 35 oil and gas tankers exited the Persian Gulf through the strait on June 25. That marked the first time since the Middle East conflict erupted in February that daily transit volumes returned to the normal range. For the global oil market to reach a supply-demand balance in 2027, shipments through the strait only need to recover to about 11 million to 12 million barrels a day, or roughly 65% of pre-conflict levels, the bank said.
The recovery comes as the U.S. and Iran agreed to halt hostilities and allow commercial vessels to transit the strait freely, according to Axios. Both sides plan to hold emergency talks in Doha. However, Iran's deputy foreign minister said Tehran intends to continue pursuing plans to monitor traffic through the waterway, a move opposed by the U.S., Europe and Gulf Arab states, underscoring deep divisions over the future management of the world's most critical oil transit chokepoint.
Demand Weakness Compounds the Glut Risk
Beyond the strait reopening, two structural factors are compounding the oversupply outlook: persistent strength in U.S. oil exports and persistently weak Chinese demand. Chinese crude imports have been weaker than expected, while U.S. production growth continues to add barrels to the market. Morgan Stanley said demand growth remains tepid and inventories are sufficient to absorb short-term shocks.
Goldman Sachs has also lowered its oil price outlook, signaling that major investment banks are rapidly recalibrating their energy market models as the geopolitical risk premium fades. The last time Brent crude fell this sharply in a single quarter was during the early months of the Covid-19 pandemic in 2020, when prices briefly turned negative.
The shift in market focus from war-related supply disruption risks toward the potential for structural oversupply next year has broad implications for energy producers. Oil companies that priced projects assuming $100-plus Brent may need to revisit capital allocation. An $80 fourth-quarter Brent print versus a $95 one is the difference between a comfortable earnings beat and a difficult quarter for integrated majors.
This article is for informational purposes only and does not constitute investment advice.
