Morgan Stanley sees Brent at $70/bbl in third quarter on improving market

FILE PHOTO: Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base

(Reuters) - Morgan Stanley expects Brent crude prices to climb to $70 per barrel in third quarter on “signs of a much improved market” including prospects of improving demand.

“The stars have aligned for the oil market even faster than expected,” the bank said in a note on Monday.

Morgan Stanley noted, “new COVID-19 cases are falling fast globally, mobility statistics are bottoming out and are starting to improve, and in non-OECD countries, refineries are already running as hard as before COVID-19.”

Inventories drawing fast, time spreads becoming deeply backwardated and stronger physical differentials in the North Sea market are signaling at an improved market, the bank said.

Morgan Stanley boosted its forecast for Brent prices in the second half of the year from $60 a barrel to a range of $65-70 per barrel, with a $70 peak in the third quarter.

The bank also raised its outlook for Brent prices in the second quarter to $65 per barrel from $55, and hiked its fourth-quarter forecast to $65 from $60.

“Oil markets are in greater deficit than consensus balances suggest,” it said, adding, demand is likely to improve by about 4 million barrels per day by year-end, inventories would normalise and spare capacity should see a meaningful reduction.

Oil prices rose nearly 4% on Monday, boosted by the expected slow return of U.S. crude output following last week’s deep freeze in Texas shut in production. [O/R]

Reporting by Eileen Soreng in Bengaluru; Editing by David Gregorio