RE: Morgan Stanley's Martin Rats2 Jun 2025 03:10
Impact on oil prices: Current OPEC's quota increase come against a backdrop of seasonal demand strength. Refineries are coming out of maintenance, which typically peaks in May. From here on, refinery crude throughput is set to increase, in order to meet the seasonal upswing in demand. As refinery margins are currently healthy, refiners have a strong incentive to ramp up runs, exerting crude demand. That likely keeps the crude market balanced, if not somewhat tight, and probably supports prices in the next few months.
Still, from Sep/Oct onwards, seasonal demand tailwinds turn into seasonal demand headwinds. By then, we would also expect the impact from tariffs on oil demand to become more visible. In the meantime, non-OPEC supply has visibly re-accelerated after its '2024 flatspot'. With OPEC production growing too, this likely results in a meaningful surplus from 4Q onwards, which likely increases further in 1Q and 2Q26. Our total oil liquids balance shows a surplus of ~0.8 mb/d in 4Q, growing to 1.5 - 2 mb/d in 1H26.
Admittedly, marrying supply/demand data with observed inventories is a notoriously noisy analysis. Still, recent inventory data suggests the global surplus is already building earlier than that. Over the last 13 weeks, we can identify ~2 mb/d in global inventory builds - see
Exhibit 34 and Exhibit 35 . In January and February, inventories built (slightly) less than our models suggested, but this changed from March onwards. Since then, they have built considerably more.
However, not all inventories are equally important for prices: commercial OECD storage is far more important than storage in non-OECD countries or government-controlled stocks.
So far, the observed built has shown up outside commercial OECD stocks, which has therefore softened the price impact. Still, if the anticipated global surplus materialises after the summer, we would expect that this will eventually show up in commercial OECD storage too.
When that happens, we would expect the forward curve to fully move into contango, likely towards year end. As discussed in previous research (see slides 5-9 here), in turn, that will likely drive Brent prices into the mid-$50s by 1H26. With OPEC+ showing little sign that the quota increases will slow, this prospect remains firmly in-place.
Sign In
Follow the stocks
