Morgan Stanley Cuts Brent Outlook Twice in Two Weeks as Hormuz Traffic Rebounds
The bank sees a 2027 supply glut forming as tanker flows normalize faster than expected, compounded by high US exports and soft Chinese demand.
Morgan Stanley cut its oil price forecasts for the second time in about two weeks on Tuesday (2026-07-01), flagging a faster-than-expected recovery in Strait of Hormuz shipping traffic and a building risk of oversupply in 2027. ICE Brent crude front-month was trading at $73.40 per barrel as of June 30 — less than two-thirds of the $111 level reached in May as the strait remained inaccessible to tankers.5
The speed of the recovery is driving the revision. Morgan Stanley analysts counted 35 oil and gas tankers exiting the Persian Gulf through the strait on Thursday (2026-06-25) — the first time that measure returned to the 30-to-40 range that prevailed before the conflict with Iran began in February, according to the bank's note cited by Rigzone.5
The editorial lesson from the Hormuz crisis applies directly here: what matters now is not the original supply shock but how fast the removed barrels return and what that does to the forward curve. The answer, according to Morgan Stanley, is faster than the market had priced.5
The bank's surplus arithmetic is worth unpacking. To balance the oil market in 2027, flows through the strait need to recover to only about 65% of pre-conflict levels — or roughly 11 to 12 million barrels a day — rather than a full restoration, because two structural factors are suppressing demand for Middle Eastern crude independently of the geopolitical situation.5
Morgan Stanley described those factors as the "twin solvers": US crude and condensate exports have risen sharply during the disruption, and Chinese imports have fallen by approximately 5.5 million barrels a day. Together, those shifts absorbed around 9.3 million barrels a day of the tightness that the Hormuz closure would otherwise have inflicted on global markets — meaning the physical shortfall the market actually experienced was a fraction of what the headline disruption implied.3
Despite the loss of almost 1 billion barrels of supply over the course of the crisis, futures never breached 2022 highs. Analysts including Morgan Stanley's Martijn Rats attributed that resilience to market buffers and persistent investor expectations that the strait would reopen, which suppressed the risk premium even when the closure was at its most acute.3
Forward market structure is now reinforcing the bearish case. Morgan Stanley cited a contango pricing pattern in oil futures — with the prompt contract trading at a discount to subsequent months — alongside physical differentials that have been "marked to distress," according to the bank's note. Both are consistent with a market beginning to price re-supply rather than sustained shortage.5
The bank's 2027 price trajectory follows from that supply outlook. Dated Brent, a benchmark for physical transactions, is seen at $70 per barrel by the end of 2027, with outlooks for all four quarters of next year marked lower than previous forecasts. A Bloomberg Intelligence survey conducted earlier in the year found a majority of participants expected ICE Brent crude front-month to average $81 to $100 over the next 12 months — a range that now appears optimistic relative to Morgan Stanley's revised path.5,1
The remaining uncertainty runs in both directions. The EIA, in its May Short-Term Energy Outlook, had assessed that Iraq, Saudi Arabia, Kuwait, the UAE, Qatar and Bahrain collectively shut in 10.5 million barrels a day of crude production following the closure — a figure that will only gradually unwind as infrastructure and tanker routing are restored. Any delay in that restoration, or a renewed incident in the strait, would compress the 2027 surplus timeline quickly.4
The UAE is building a second pipeline to bypass the strait entirely. Sultan Ahmed Al Jaber said the project was 50% complete as of May, with delivery planned for next year — adding another route for Gulf crude to reach markets independently of Hormuz tanker traffic, and another variable affecting how quickly the physical risk premium bleeds out.2
For now, the signal Morgan Stanley is tracking is the daily tanker count through the strait. A reading of 35 on Thursday (2026-06-25) was the threshold the bank identified as marking normalisation; how quickly that rate climbs toward the full pre-conflict level of 17 to 18 million barrels a day will determine whether the 2027 surplus materialises on the bank's current timeline or is pushed further out.5