by Yongchang Chin
OPEC+ is set to continue returning production for another three months, which will help drive oil prices lower, according to Morgan Stanley.
The eight key members in the cartel that had voluntarily cut output in November 2023 announced a fourth consecutive clawing back of those reductions on Saturday. That would mean the full 2.2 million-barrel-a-day decrease would be unwound by October, Morgan Stanley analysts including Martijn Rats said in a June 2 note.
“With this latest announcement, there is little sign that the pace of quota increases is slowing down,” they said. “Higher quota will likely create room for increased production in Saudi Arabia, and to an extent in Kuwait and Algeria. However, we do not expect that quota increases will lead to commensurate production increases for the rest of the ‘Group of 8’.”
Morgan Stanley’s view for three more 411,000 barrel-a-day hikes by the producer group contrasts with that of Goldman Sachs Group Inc., which said in a note dated Sunday that it expected just one more month of increases. Both banks maintained their price forecasts, and predictions of a glut forming later in the year.
However, actual output increases are unlikely to match the higher targets because of a “disconnect between quota and production,” Morgan Stanley said.
The cartel only pumped about two-thirds of stated increase in May, and the disjunct is only expected to continue in June and July, the analysts said. It will tail off to average just about 50,000 barrels a day incrementally for the rest of the year.
Prices are likely to find short-term strength, with a seasonal high in refineries’ crude demand as plants come out of maintenance — typically peaking in May — and healthy refinery margins incentivizing oil processing rates, Morgan Stanley said. The strength would likely fade toward the end of the year, however, as the impact of US tariffs becomes more visible and non-OPEC supply accelerates, the analysts said.
The bank sees Brent futures averaging $57.50 a barrel in the final two quarters of the year, and $55 in the first half of 2026.
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