Morgan Stanley has raised its Brent crude forecasts sharply, now projecting a fourth-quarter 2026 peak near $100 a barrel as a slower Middle East supply recovery tightens the market. The bank's equity strategist separately warns that a renewed oil spike is the biggest risk facing US stocks.
Morgan Stanley lifts its Brent price path
Morgan Stanley now expects Brent to average around $90 a barrel in the third quarter of 2026, before peaking near $100 in the fourth quarter, then easing to about $95 in Q1 2027 and $90 in Q2, according to a note issued Sunday. That marks a substantial upgrade from the bank's previous assumption of roughly $75 across all four quarters.
The bank cited a slower than expected recovery in Middle East supply, a process it now expects to run well into 2027, keeping the market in deficit through Q4 2026 and Q1 2027.
Inventories fall as exports retreat
The revision reflects a market tightening faster than Morgan Stanley had anticipated. Oil held at sea has dropped by roughly 170 million barrels since mid-July, while onshore inventories, including in China, are also declining. Middle East exports have retreated toward levels last seen in March and April.
Morgan Stanley also flagged an unusual dislocation between crude and refined product markets. Gasoil has been trading around $175 a barrel against Brent near $92, producing a record crack spread of roughly $75, a gap the bank said underscores how tight the physical market has become even as headline crude prices remain below prior cycle peaks.
Wilson calls oil the biggest risk to US stocks
The tighter outlook carries implications beyond energy. Morgan Stanley's chief US equity strategist, Michael Wilson, has separately warned that a renewed spike in oil prices is the single biggest risk facing US stocks, recommending energy shares as a hedge for broader portfolios. Wilson argued that another leg higher in crude could push bond yields up further and eventually force the Federal Reserve to respond as it works to bring inflation back to target, though he said the central bank would likely act only after some additional market instability.
Wilson noted that US stocks have historically suffered more when oil rises than they have benefited when it falls. He continues to favor quality stocks with steady earnings and strong margins, arguing that this composition is one reason he still prefers US equities over international markets.
Source: Investinglive
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