Additionally, Morgan Stanley has slightly reduced its Brent crude price forecasts, now expecting prices to average $80 per barrel in the fourth quarter of 2024, compared to an earlier projection of $85 per barrel. As of Friday, Brent crude was trading at approximately $78 per barrel, with U.S. West Texas Intermediate crude futures at $74.52.

The shift to LNG-powered trucks has reduced China's oil demand growth by 100-150 thousand barrels per day (kbd), while the increase in EV usage has cut gasoline demand by around 100 kbd, according to a note from Morgan Stanley dated August 22. The note also highlighted a slowdown in petrochemical capacity expansion, which has tempered the consumption of liquefied petroleum gas (LPG), ethane, and naphtha due to low petrochemical margins.

This outlook aligns with the recent reduction in oil demand growth forecasts by the Organization of the Petroleum Exporting Countries (OPEC), which also pointed to economic softness in China.

Morgan Stanley noted that the current oil market remains tight, with inventories declining by about 1.2 million barrels per day over the past four weeks, a trend expected to continue through the third quarter. However, the bank anticipates a softening market balance later in the year, with demand slowing after summer and both OPEC and non-OPEC supply increasing in the fourth quarter. This could lead to a surplus in 2025.

In the short term, Brent prices have fallen ahead of underlying market fundamentals, and Morgan Stanley expects Brent to hover around $75 per barrel by this time next year.

(ET)