The global oil market is rapidly losing momentum. Morgan Stanley has cut its price forecasts for the second time in two weeks, pointing to a growing surplus of crude oil. The reopening of the Strait of Hormuz is progressing faster than analysts had expected. At the same time, U.S. oil production continues to reach record levels, while demand across Asia is weakening. The result is a market with more barrels than buyers.

Morgan Stanley Lowers Brent Price Outlook

The bank has revised its forecast for Brent crude. Physical Brent is now expected to average $75 per barrel during both the third and fourth quarters of 2026, representing reductions of $15 and $5 respectively from previous estimates. Looking further ahead, Morgan Stanley expects prices to decline to $70 per barrel by the end of 2027.

“We are seeing a classic case of overproduction. When supply floods storage facilities, prices inevitably capitulate. At the moment, the market has no meaningful drivers for growth-only downside risks,” macroeconomist Artyom Loginov said in comments to Pravda.Ru.

Brent futures have already fallen about 30% during the current quarter. The decline has been supported by the temporary easing of tensions between Washington and Tehran, allowing tanker traffic through the Strait of Hormuz to recover. Major financial institutions, including Goldman Sachs, have also been revising their market outlooks as geopolitical conditions change. At the same time, Russia and Iran continue restoring logistics networks affected by sanctions.

Strait of Hormuz Recovery Weighs on Prices

Shipping through the world’s most important oil transit route is recovering rapidly. Last Thursday, 35 tankers passed through the Strait of Hormuz, returning traffic to levels seen before the escalation in February. Analysts estimate that restoring shipping to around 65% of its previous capacity-roughly 12 million barrels per day-would be sufficient to stabilize the market by 2027.

Oil prices have retreated sharply from the April peak of $126 per barrel. September Brent futures are currently trading near $73. As negotiations between Iran and the United States continue, the geopolitical risk premium has continued to fade. Even isolated attacks on commercial shipping have done little to discourage tanker operators, with both conventional carriers and shadow fleets continuing to move cargo.

“The reopening of the Strait of Hormuz is a powerful deflationary signal for the oil market. If supply continues to normalize, revenue for Western oil producers that benefited from exceptionally high prices will come under sustained pressure,” oil market analyst Alexey Chernov told Pravda.Ru.

Market Indicators Point to Growing Oversupply

Morgan Stanley also highlights growing signs of weakness in market fundamentals. Analysts note the emergence of bearish contango, a situation in which near-term contracts trade below longer-dated futures, making storage more profitable than immediate sales. Price spreads between different crude grades likewise suggest mounting pressure in the physical market.

“Set aside all the headlines for a moment and simply watch the prices. They describe a market that is weakening across the board,” Morgan Stanley analysts led by Martijn Rats wrote.

“Oversupply is toxic for investment in new oil fields. We are entering a cycle in which only producers with the lowest production costs will remain competitive, and that certainly does not favor U. S. shale producers,” geologist Mikhail Yegorov said in comments to Pravda.Ru.

Frequently Asked Questions

Why did Morgan Stanley cut its oil forecast again?

The bank cited faster-than-expected recovery in tanker traffic through the Strait of Hormuz, weakening demand in China, and record oil production in the United States.

How do U.S.-Iran negotiations affect gasoline prices?

Reduced geopolitical tensions remove the so-called “war premium” from crude oil prices, contributing to lower global fuel costs.

What is contango?

Contango occurs when future delivery contracts trade above current prices, typically indicating that supply exceeds immediate demand and encouraging storage.

How low could Brent prices fall?

Morgan Stanley expects Brent crude to decline to around $70 per barrel by the end of 2027 if current supply and demand trends continue.