Wall Street's outlook on oil prices has dimmed further as growing signs of weak global demand and high supply levels push crude markets to 2024 lows. On Monday, Morgan Stanley revised its Brent Crude forecast for the second time in a month, lowering expectations amid increasing concerns over demand weakness and inventory buildup.
Oil Prices Slump Amid Global Economic Concerns
In its latest report, Morgan Stanley cut its forecast for Brent crude oil, predicting it will now average $75 per barrel in the fourth quarter of 2024. This is a reduction from its previous estimate of $80 per barrel, a revision made just a month ago. The report highlighted the "considerable demand weakness" observed in global markets, particularly in major economies like China and the United States, both key drivers of global oil consumption.
On the same day, West Texas Intermediate (WTI) crude traded near $68 per barrel, while Brent hovered around $71. The report noted that oil prices have been following a path indicative of recession-like conditions, with inventory builds already resembling those seen during economic downturns.
Morgan Stanley’s Strategic Outlook
Morgan Stanley's commodity strategist, Martijn Rats, and his team emphasized that despite the downward trend in oil prices, the broader outlook remains uncertain. "Demand indicators are concerning," Rats explained, "but it remains too early to firmly base our forecasts on 'recession-like' demand scenarios."
The analysts also pointed out the role of OPEC+, which recently delayed the rollback of voluntary production cuts initially set for October, as an effort to stabilize the market. However, despite these attempts, oil markets have continued to underperform, largely driven by weak demand from China, the world’s largest importer of crude oil.
Wall Street’s Diminishing Expectations
Morgan Stanley is not the only major financial institution adjusting its outlook on crude oil. JPMorgan recently lowered its fourth-quarter forecast for Brent to $80 per barrel, down from $85, citing oil’s poor performance throughout August. Similarly, Goldman Sachs revised its 2025 projection for Brent, cutting it by $5 per barrel to a range of $70 to $85.
The outlook for oil is further weakened by growing economic concerns in both the U.S. and Europe. As the summer driving season comes to an end, energy demand in these regions has slowed, placing additional pressure on oil prices. According to analysts, this decline in crude has also contributed to a sharp drop in gas prices across the U.S., with some predicting that the national average could fall to $3 per gallon by the end of the year.
Crude oil prices have hit their lowest levels of 2024, wiping out any gains seen earlier in the year. As of now, WTI crude is down roughly 3% year-to-date, while Brent crude has dropped around 5% during the same period.
The Road Ahead for Oil Markets
While the broader market witnessed a rebound on Monday, the outlook for the oil sector remains uncertain. Factors such as weakening global demand, increasing supply, and economic pressures from key economies like the U.S. and China will continue to play a critical role in shaping future trends.
Morgan Stanley’s latest revision highlights a significant shift in the global energy market, where demand dynamics are undergoing rapid changes. Although organizations like OPEC+ are actively trying to balance the market, their efforts may not be enough to reverse the downward trend.
Investors and market participants will need to closely monitor developments in oil prices as the year progresses, with attention on key economic indicators and potential shifts in supply-demand dynamics. As other financial institutions like JPMorgan and Goldman Sachs have also revised their forecasts, the broader sentiment on oil remains cautious, with many firms bracing for continued volatility in the months ahead.
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