The API private oil inventory data is due out later today and will be the next market mover for crude; though it usually leaks early. We're now past the period of seasonal strength for oil but we're into a period of voluntary production cuts from Saudi Arabia and Russia. The US SPR release are now finally done.
A deficit in the oil market is now widely expected to persist for the next few months, and potentially further if the voluntary cuts continue.
But Morgan Stanley doesn't see much upside for crude and has cut its forecasts:
- Q3 brent to $75 from $77.50 (spot $76.43)
- Q4 brent to $70 from $75
- 2024 Q1 brent $70 vs $75
- 2024 Q4 brent $80 vs $85
"Despite low investment, non-OPEC+ supply has been growing robustly and supply from Iran and Venezuela has been creeping higher. We still model stock draws in Q3, but expect oil price softness to continue as the market's focus shifts to H1 2024 when balances look in surplus," Morgan Stanley said in a note.
They highlight -- naturally -- that those numbers are dependent on what OPEC+ does.
On the supply side, they highlight that US production could fall sharply if WTI falls in the mid-to-low $60s, where they see about 30% of production as uneconomical.
So that all sets up for a clear $65-75 range for WTI. That's nothing exciting but it would certainly help tame inflation.
The risks are mostly to the downside if OPEC+ cracks or decides to squeeze shale once again.
