Morgan Stanley Holds Brent Forecasts, Sees Prolonged Supply Normalisation Even if Hormuz Reopens

Morgan Stanley maintained its Brent crude price projections for 2026 and 2027 while cautioning that oil supply chains will require months to return to normal even if transit through the Strait of Hormuz is restored. The bank's base-case assumes a gradual recovery of exports, and recent market moves and Asian pricing actions from Middle Eastern producers have driven benchmark crude above $100 a barrel.

Key Points

Morgan Stanley kept Brent forecasts at $110 for Q2 2026, $100 for Q3 2026 and $80 in 2027.
Under the banks base-case, Strait of Hormuz exports stay low in April, recover about 70% of lost volumes between May and July, and return to steady-state by October; supply chains may take months to normalise even if the strait reopens.
Market reaction included Brent trading at $102.23 a barrel and WTI at $103.88 by 0810 GMT, and Middle Eastern producers raising Asia-bound official prices for May, with Saudi Arab Light priced at a record $19.50 a barrel premium to the Oman/Dubai average.

Morgan Stanley has left its Brent crude price forecasts intact, projecting $110 per barrel for the second quarter of 2026, $100 per barrel for the third quarter of 2026 and a decline to $80 per barrel in 2027. The bank emphasised that even if the Strait of Hormuz reopens to normal traffic, oil supply chains are likely to take several months to normalise.

Under the firms base-case scenario, exports through the Strait are expected to remain at low levels during April, recover around 70% of lost volumes between May and July, and only return to steady-state levels by October. That gradual timetable reflects the banks view that operational, logistical and commercial frictions will not resolve immediately with a reopening.

Oil benchmark values moved higher on Monday, with Brent trading back above $100 a barrel as reports surfaced that the U.S. Navy was preparing to block ships to and from Iran via the Strait of Hormuz, an action that could restrict Iranian crude exports after Washington and Tehran failed to reach a deal to end the war. By 0810 GMT, Brent futures were quoted at $102.23 a barrel, while U.S. West Texas Intermediate was trading at $103.88.

Market participants also reacted to pricing decisions by Middle Eastern producers. Kuwait and Iraq were among those that raised official selling prices for Asia for May, and Saudi Arabia set the price of its Arab Light crude to Asia at a record premium of $19.50 a barrel to the Oman/Dubai average. These moves reflect immediate commercial responses to the recent disruption and factor into expectations for global supply.

Analysts cited in market commentary expect the impact on production to be sufficient to flip the oil market into a supply deficit this year, a shift from pre-conflict estimates that had pointed to a comfortable oversupply. Morgan Stanleys unchanged forecast and its multi-month normalisation timeline underscore the banks view that compensating supply responses and logistical recovery will be gradual.

The combination of elevated benchmark prices, tightened Asia-bound official selling prices from key Middle Eastern producers, and naval movements around the Strait of Hormuz has produced a market environment where short-term supply constraints and pricing power are central concerns for refiners, trading houses and downstream consumers.

Risks

Operational and logistical frictions could delay the recovery of exports through the Strait of Hormuz, sustaining higher prices and affecting refiners and consumers.
Potential restrictions on Iranian oil exports due to naval actions could reduce available supply and push the market into a deficit, impacting energy traders and import-dependent economies.
Higher Asia-bound official selling prices from major Middle Eastern producers may raise input costs for refiners and downstream firms, pressuring margins in the absence of rapid supply normalisation.

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