Morgan Stanley significantly lowers oil price forecast, expects Hormuz Strait reopening to boost supply

(1) Morgan Stanley has significantly lowered its oil price forecasts for the coming quarters, citing that a temporary agreement between the US and Iran is expected to restore regional oil production and increase supply. The spot Brent crude oil price is now projected to average $90/barrel in the third quarter (previously $100), and $80/barrel in the fourth quarter (down by $15).(2) Analysts pointed out that the Middle East production recovery process has started one to two weeks earlier than expected. Although there are still many issues to be negotiated and key risks remain, this represents a crucial step towards easing conflict and enabling more oil exports. The resumption of tanker transportation will take “several weeks,” as sea mines need to be cleared, commercial confidence rebuilt, and vessels returned.(3) Output is expected to start increasing gradually from mid-July: assuming 50% of lost production recovers by September, 80% by December, and the remainder by early 2027. Following the announcement of the agreement, oil prices have dropped to their lowest level since March, and the market remains skeptical about the specifics of the implementation.