Morgan Stanley (NYSE:) expects the gap between supply and demand in the oil market to narrow during the third and fourth quarters of 2023, supported by a recovery in demand as a result of China’s reopening of its borders and other factors.
“We expect the oil market to reach equilibrium in the second quarter and then turn into tightness in the third and fourth quarters, which will support higher prices later this year,” the bank said in a note dated Wednesday. The bank said that uncertainty over things such as deregulation in China, recovery in travel, risks related to Russian oil supply, slowing US shale oil production and stoppages of pumping from the Strategic Petroleum Reserve (SPR) “will turn into factors.”
Morgan Stanley expected first-quarter prices to remain in a range of $80-85 per barrel, but it also expected prices to reach $110 per barrel by the end of the year and said, “The supply ceiling is still not high and inventories are low overall.”
Benchmark Brent crude traded around 83.04 a barrel on Thursday, after rising 3 percent in the previous session.
“We associate the upward trend in oil demand in China as a result of the reopening at approximately one million barrels per day, and this is achieved gradually throughout the year,” the bank said. The bank added that it expects the reopening of the Asian giant to lead to a rapid recovery in aviation demand.
Last month, China canceled its strict measures aimed at preventing the spread of the Corona virus, canceled closures and quarantines, and stopped regular tests.
Meanwhile, the G7 coalition will, from February 5, impose a cap on Russian oil products in an effort to reduce Moscow’s revenue from energy exports and reduce its ability to finance its invasion of Ukraine.
Morgan Stanley predicted a disruption to Russian oil supplies “by close to 1 million barrels per day from current levels” due to the price ceiling.