The worldwide oil market is in very uncommon territory proper now, with futures pricing that factors to near-term tightness whereas additionally flagging a “significant surplus” additional out, in accordance with Morgan Stanley.
“The Brent ahead curve has an uncommon form for the time being: downward sloping throughout the primary 9 contracts and upward sloping thereafter,” analysts together with Martijn Rats and Charlotte Firkins mentioned in a notice. “That is so uncommon that, the truth is, there may be little historic precedent,” they mentioned.
Crude has been rocked this month by the fall-out from the US-led commerce conflict, strikes by OPEC+ to spice up provide at a faster-than-expected clip, and rising expectations for a surplus. These drivers have mixed to spur a steep drop in headline costs in April — with Brent 12% decrease — however concurrently recommend a extra advanced underlying story concerning the timing of the glut.
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At current, Brent’s nearer months are nonetheless pricier than these subsequent in sequence, a sample generally known as backwardation that’s seen as bullish because it reveals merchants are prepared to pay a premium for extra immediate barrels. However the curve flips to the alternative construction, generally known as contango, additional into 2026.
“The contango after the ninth contract indicators a speedy weakening later this 12 months, with slowing demand and sturdy provide progress driving a surplus,” the analysts mentioned. “In about 30 years’ of historic knowledge, there has not been one other interval when the ahead curve confirmed a ‘smile’ the way in which it at present does.”
World benchmark Brent is anticipated to drop again into the low $60s-a-barrel later this 12 months, in accordance with Morgan Stanley, which retained its quarterly forecasts. Futures for the soon-to-expire entrance month of June had been final under $65 a barrel, whereas these for July had been about $1 decrease.
“Commerce tariffs will flip right into a significant headwind for oil demand,” the analysts mentioned. “Our crude steadiness reveals a deficit within the third quarter, however this turns right into a significant surplus thereafter.”
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