Morgan Stanley expects the macro-headwinds and the prospects of stock builds in Q1-2023 to weigh on the oil markets for now.
Morgan Stanley expects the macro-headwinds like slowing GDP growth and tightening monetary conditions, and the prospects of stock builds in Q1-2023 to weigh on the oil markets for now.
During the third and fourth quarter of 2023, the market is set to tighten, supported by a recovery in demand driven by China reopening its borders, risks to Russian supply, further recovery in the aviation sector, slowdown in US shale, the end of releases from America's Strategic Petroleum Reserve.
"Even with modest demand growth assumptions, we see the oil market coming into balance in Q2 and turning tight in Q3 and Q4, supporting higher prices later this year," Morgan Stanley said in a note on Thursday.
While the investment bank expects Brent prices to remain range-bound for the remainder of Q1 around the current level of $80-85/bbl, it noted that inventories are low and spare capacity is thin.
"When demand growth returns, the oil market will likely find that the supply ceiling is still not far away. Our expectation is that this will support Brent in the $100-110/bbl range by H2."
Benchmark Brent crude was trading around $83.71 per barrel on Thursday, up 1.27%, according to Refinitiv data.
The report also noted that under investment in exploration also remained a concern. "Exploration capex showed another real-terms decline, exploration wells drilled reached a 10+ year low and discoveries were once again close to historical lows."
(Writing by Brinda Darasha; editing by Seban Scaria)