Morgan Stanley notes that global oil inventories have expanded rapidly in recent months. However, oil prices have been able to hold their ground temporarily, largely due to most of the growth occurring in the Asia-Pacific region.
In a report dated July 15, analysts at Morgan Stanley, including Martijn Rats, posed the question: "Is the oil market really tight, or not?" They pointed out that while total global inventories surged by about 235 million barrels in the five months to the end of June, only 10% of that increase occurred in OECD countries, which are "critical for price formation."
Despite the headwinds from a U.S.-led trade war and the easing of supply restrictions by OPEC+, the global benchmark Brent crude price has continued to move higher in May and June, and so far this month.
While global supply oversupply is widely expected in coming quarters, the near-term structure of crude oil – with spot prices higher than forward prices – suggests the current market is somewhat tight. "What reconciles this apparent contradiction is the uneven regional distribution of global inventory growth," analysts say. "Most of the inventory growth has occurred in regions of lower price impact, while inventories in key pricing hubs are unusually tight - inventory growth is in the Pacific, but Brent is priced in the Atlantic."
Morgan Stanley warns that once the summer peak demand season is over, a sizable supply surplus will reappear, although the bank still expects only a "small fraction" of that surplus to be reflected in OECD inventories. Analysts forecast these inventories to grow by no more than 165 million barrels over 12 months, bringing inventory levels back to 2017 levels, when Brent crude traded around $65 a barrel.
The bank maintains its fourth-quarter Brent crude price forecast at $65 a barrel and forecasts for all four quarters of 2026 at $60 a barrel.
Morgan Stanley indicated that non-OECD countries accounted for about 100 million barrels of the inventory growth tallied in recent months, with China alone accounting for 48 million barrels. In addition, the amount of so-called “oil on water” has increased, rising by 106 million barrels.
Earlier this week, oil prices rose on the prospect of Trump imposing sanctions on Russia, but later retreated as a 50-day deadline raised hopes that sanctions could be avoided.
“The focus has been on Trump. There were worries he might immediately impose sanctions on Russia, and now he’s given another 50 days,” said Giovanni Staunovo, commodity analyst at UBS. “Those worries about the market soon tightening further have dissipated. That’s the main story.”
But if the proposed sanctions are implemented, ING analysts say in a report, “it would fundamentally alter the outlook for the oil market.”
Risk Warning and Disclaimer: This article represents only the author’s views and is for reference only. It does not constitute investment advice or financial guidance, nor does it represent the stance of the Markets.com platform. Trading Contracts for Difference (CFDs) involves high leverage and significant risks. Before making any trading decisions, we recommend consulting a professional financial advisor to assess your financial situation and risk tolerance. Any trading decisions based on this article are at your own risk.
