Morgan Stanley has revised down its oil price forecasts, citing a quicker-than-anticipated resumption of flows through the Strait of Hormuz, alongside robust US supply and subdued Chinese demand. This combination heightens the prospect of a market surplus, prompting a significant adjustment to the bank’s outlook.
Forecast Revisions and Key Drivers
Analysts Martijn Rats, Charlotte Firkins, and Amy Gower stated in a Monday note that the bank lowered its third-quarter 2026 Dated Brent forecast by $15, bringing it to $75 a barrel. Further reductions are projected for the third quarter of next year, with prices expected to settle at $70.
The analysts specifically noted, “Exports via the Strait of Hormuz are recovering faster than expected.” This swift recovery is a primary factor influencing the revised outlook, signaling a potential easing of supply constraints that had previously supported higher prices.
Hormuz Recovery Accelerates
Despite a recent slowdown in traffic following a flare-up in the conflict that saw two ships hit, indications suggest tanker companies and their crews are willing to navigate the critical chokepoint. This willingness is crucial for normalizing the global oil market and unlocking millions of barrels of supply from the energy-rich region.
Morgan Stanley observed 35 oil and gas tankers exiting the Persian Gulf via the strait on Thursday, marking the first return to the pre-conflict range of 30 to 40 vessels. The bank estimates that for the oil market to balance in 2027, Hormuz flows only need to recover to approximately 65% of pre-conflict levels, translating to about 11 to 12 million barrels a day.
Broader Market Dynamics
Beyond Hormuz, the market continues to be shaped by what analysts described as “the ‘twin solvers’ that allowed the market to adapt in the last few months – i.e. high US exports, low China imports – are largely still in place.” This sustained dynamic of strong US output offsetting weaker demand from China contributes significantly to the surplus risk.
Brent futures, which saw a peak above $126 in April, have since erased those gains, closing at $73.91 on Monday. This decline coincides with ongoing talks between Iran and the US aimed at a permanent resolution to the four-month conflict, further reducing geopolitical risk premiums.
The confluence of a swifter return of critical shipping lanes, sustained US production strength, and tempered demand from China is fundamentally reshaping the near-term oil market outlook. Morgan Stanley’s revised forecasts underscore a growing expectation of ample supply, potentially keeping a lid on prices in the coming years.
