Morgan Stanley suggests that President Trump's tariff policies may force OPEC to continue extending its production cuts.
Morgan Stanley believes that, in light of escalating tensions, OPEC+ is likely to refrain from increasing production. The bank asserts that the Trump administration's tariff policies and heightened sanctions on Iran may suppress demand in oil-intensive sectors globally, leading to a more balanced supply-demand scenario in the second half of the year.
In a recent report to clients, Morgan Stanley noted that uncertainties in oil demand caused by U.S. policies could prompt OPEC+ members to extend current production cuts. The report highlighted that in just five weeks, market participants have faced sanctions on Russia’s oil industry, tariffs on Mexico and Canada, and renewed sanctions on Iran aimed at reducing its oil exports to zero.
The report indicated that increasing trade tensions could weaken demand, particularly impacting oil-intensive industries the most. This downward pressure on demand might cause OPEC+ to delay its plans to gradually increase production, initially set to commence on April 1.
Morgan Stanley stated, "In light of escalating trade tensions, increasing supply is not an appealing prospect, and we suspect OPEC+ will avoid doing so."
While the bank did not alter its overall oil demand expectations for this year, it indicated that supply levels in the latter half of the year may fall below previous forecasts. If OPEC+ extends production cuts, the bank's supply prediction could decrease by 400,000 barrels per day.
Additionally, Morgan Stanley observed that Russian oil exports have begun to decline, with stable production potentially dropping by 150,000 barrels per day in the second half.
According to the bank's analysis, global oil inventories have increased by about 600,000 barrels per day in the first quarter, with predictions of a substantial rise of 1 million barrels per day in the second quarter. With typical demand growth from Q2 to Q3 and the downward adjustment in supply forecasts, analysts expect a shift from a supply surplus to a shortfall of approximately 200,000 barrels per day in the latter half of the year.
Morgan Stanley also revised its Brent crude price forecast for Q1 down by $2.50 to $75 per barrel, projecting an inflation-adjusted price of $77 per barrel for 2025. Brent crude closed at $75.87 per barrel on Monday, with an average price of $77.69 per barrel year-to-date.
The bank concluded that despite the volatility in oil markets and policy actions, Brent crude prices remain within a normal range.
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