Episode summary
Why Oil Prices Could Rise to $100 Again
Thoughts on the Market (Morgan Stanley)
· · Hosts: Martin Ratz · Guests: Martijn Rats
Summary
Brent has swung wildly this summer, but Martijn Rats argues the bigger story is that the oil market has genuinely tightened. He says supply is being constrained by falling inventories, weaker offshore buffers, and ongoing disruption in the Middle East, while global SPR releases are fading and Chinese imports may be stabilizing after an earlier slump.
The clearest signal, he says, is inventories: crude on water fell from nearly 1.3 billion barrels in mid July to 1.1 billion barrels recently, while onshore crude inventories also dropped. At the same time, exports from the Strait of Hormuz and the Red Sea remain below earlier levels, and Morgan Stanley expects no material further support from strategic reserves after September.
Rats also notes that refinery outages are unusually large, which has prevented the crude squeeze from becoming even tighter by reducing crude demand. Instead, the stress has shown up in refined products, especially diesel, where the crack spread hit an all-time high. Morgan Stanley now expects Brent to average $100 per barrel in the fourth quarter and says inventory draws should continue into early 2027.
Key takeaways
- Martijn Rats says the oil market has shifted from temporary volatility to a real tightening in supply and inventories.
- Morgan Stanley sees Brent averaging $100 per barrel in the fourth quarter as inventories keep falling.
- The biggest supply constraints remain in the Middle East, where regional exports are still below late-June levels.
- Diesel is the clearest pressure point, with the U.S. front-month benchmark recently near $195 per barrel and the crack spread at an all-time high.
- The guest expects the full recovery in Middle East supply to take well into 2027.
Notable quotes
“we think has changed. Supply is tightening, inventories are falling, and some of the buffers that helped absorb earlier disruptions are fading”
“Crude oil sitting on the water fell from nearly 1.3 billion barrels in mid July to 1.1 billion barrels recently”
“Therefore, total regional exports are still up from the lows in March and April, but they are sharply down from that late June peak”
“Globally, those releases added around 2.5 million barrels a day to supply in March and April”
“We now forecast Brent to average $100 per barrel in the fourth quarter”
How the episode opens
Welcome to Thoughts on the Market. I'm Martin Ratz, Morgan Stanley's global commodity strategist. Today, why the oil market is tightening and why we now see Brent reaching $100 per barrel later this year.
It's Thursday, September 3rd at 3 p.m. in London. It has been an extraordinary summer for oil.
Brent, the global benchmark price for crude oil and the reference point for most of the world's oil trade, traded above $110 per barrel in midmay, fell to 71 by early June, climbed back above 100 3 weeks later, and then dropped again to around $79 per barrel. More recently, the price have moved higher again. But the question now is whether that is just another temporary swing or whether there's a sign that the underlying market has changed.
we think has changed. Supply is tightening, inventories are falling, and some of the buffers that helped absorb earlier disruptions are fading. The clearest evidence is in inventories.
Crude oil sitting on the water fell from nearly 1.3 billion barrels in mid July to 1.1 billion barrels recently. That was a decline of about 190 million barrels. During one four-week stretch, oil and water fell at the unusually high rate of 5.3 million barrels a day, the fastest four-week decline since this data series began about 8 years ago.
Usually, when there is such a large amount of crude oil that is brought on land, it drives up onshore oil inventories. However, not on this occasion. On a global basis, onshore crude oil inventories have fallen by another 38 million barrels over the same period.
That means that those offshore barrels arriving were being used straight away rather than put into land-based storage. The biggest supply issue is still the Middle East. Crude flows from the straight of Ramoose briefly recovered to about 15 million barrels a day after the June memorandum of understanding.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- oil price outlook
- brent crude
- oil supply tightening
- inventory buffers
- energy costs
Companies and tickers mentioned
- MS
- Morgan Stanley
Watch the episode
Watch “Why Oil Prices Could Rise to $100 Again” on YouTube
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