Analysts at Morgan Stanley said they see continued increases coming from OPEC and its allies that will bring the full restoration of 2.2 million b/d of voluntary cuts made in November 2023 by October in a report for clients released Monday morning.

The decision by OPEC+ Saturday to raise output by 411,000 b/d in July was in line with market expectations and in the near-term will likely have little impact on prices, the bank noted, as a widening surplus into the end of 2025 remains.

Saudi Arabia, Iraq, Kuwait, Kazakhstan, Oman, Algeria, Russia and the United Arab Emirates -- referred to as OPEC's Group of 8 -- announced 2.2 million b/d of voluntary cuts in November of 2023, and with this weekend's decision, the bank estimates about 1.3 million b/d of those cutes have been brought back since April.

Morgan Stanley had originally thought that the Group of 8 would go back to the smaller quota increases of 130,000 b/d after July, but the bank said there are now few signs that the pace of increases is going to slow down.

"Our new modeling assumption is that the 'Group of 8' will continue monthly quota increase at a rate of about 411 kb/d per month over the next three months. In that case, the full cut of 2.2 mb/d would be unwound by October," the report said.

The bank said that production has increased, though at a slower pace than what the quotas would suggest. Based on analysts' assessments, data from April indicate stable output compared to March, and May data does show an increase, but it was just about two-thirds of what was planned. A disconnect between quotas and production is expected to continue, Morgan Stanley said.

The increase in quotas comes against the backdrop of seasonal demand strength.

Analysts noted that refineries are coming out of maintenance and they have incentive to run based on healthy margins. For the next few months, it should keep the crude market balanced, if not a little tight, and offer price support.

Seasonal tailwinds become headwinds from September-October onwards, and the bank said that tariff impacts will become more visibly by then. Meanwhile, non-OPEC supply growth has been moving up after being relatively flat last year. Coupled with more OPEC barrels, this should lead to meaningful surpluses from the fourth quarter on.

The bank said it sees a total oil liquids balance at a roughly 800,000 b/d surplus in the fourth quarter with that growing to 1.5 million-2 million b/d in the first half of next year.

Increases have not yet emerged in OECD stock builds, which the bank argues is more important than non-OECD and government inventory gains, but that should start to show up in OECD storage tanks after the summer, the bank said, which would alter the price curve.

"When that happens, we would expect the forward curve to fully move into contango, likely towards the end of the year," the report said.

An event like this would push Brent prices into the mid $50s by the first half of 2026, the bank said, and with OPEC+ showing no signs of slowing quota increases, the forecast remains in place.

This content was created by Oil Price Information Service, which is operated by Dow Jones & Co. OPIS is run independently from Dow Jones Newswires and The Wall Street Journal.

--Reporting by Denton Cinquegrana, dcinquegrana@opisnet.com; Editing by Michael Kelly, mkelly@opisnet.com

(END) Dow Jones Newswires

June 02, 2025 11:52 ET (15:52 GMT)

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