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Morgan Stanley expects Brent to reach $40 by 2021

Investment bank and financial services company Morgan Stanley has given a positive signal to the oil industry by upgrading its end-of-year forecast for Brent crude to $40 per barrel. It also raised its third-quarter price forecast from $30 to $35.

According to Reuters, the company says the balance between supply and demand will shift faster than expected, leading to a tighter oil market. It says:

“We expect demand to rebound to about 97 million barrels per day (bpd) by Q4 as economies come out of lockdown – a significant improvement although still down about 4 million bpd year-on-year.”

Combined with this, Morgan Stanley also expects oil supply to remain constrained. OPEC and its partners have already agreed production cuts of 10 million barrels per day (bpd) for May and June. Other countries, most notably the United States, have also seen production decline as operators choose to leave oil in the ground wherever possible, at least until oil prices recover. Overall, the company expects the oil markets to be undersupplied by 4–6 million bpd in the last quarter of this year and the first quarter of next year.

Companies with a presence in the North Sea—such as BP, which also makes derived products like agricultural oil under the Castrol brand—are particularly sensitive to oil prices because of the relatively high cost of oil production there. A quicker-than-expected return to a stable oil market will therefore be a welcome development for the UK’s offshore oil industry

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