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Oil Prices Heading Lower, Despite Growing Demand

Oil prices are widely forecast to rise in the second half of the year, based on expectations for growing demand.

However, Morgan Stanley notes that supply growth has also been “remarkably robust.”

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Rystad Energy Chart

In a research note today, the bank cut its oil price forecast for the fourth quarter by $5 a barrel to $70 a barrel for Brent crude, the international benchmark. Brent futures have been recently trading around $76 a barrel.

Although demand appears to be on track with prior expectations, supply growth from countries outside OPEC and the cartel’s allies has been strong, the bank notes.

In addition, the Morgan Stanley note that:

Supply is still likely to lag demand in the third quarter, as production cuts from OPEC and its allies, or OPEC, begin to bite.

But surging non-OPEC supply growth is likely to exceed demand in 2024, leading prices to soften later this year as the market shifts its focus from near-term inventory draws to the next year’s likely builds.

Despite “very low” levels of upstream investment in recent years, non-OPEC production could still grow by 3.8 million barrels per day between 2023 and 2027.

Production from countries outside OPEC+ is expected to reach 1.8 million barrels a day this year, driven by gains in the U.S., Brazil, Norway, Canada, and Guyana, according to consultancy Rystad Energy.

That’s the most it’s been since the U.S. shale boom began.

Image: Oil