Oil prices suggest demand is slowing to a mild recession pace, Morgan Stanley says

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Oil prices suggest demand is slowing to a mild recession pace, Morgan Stanley says

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is nowhere close to the 20 million barrel per day collapse witnessed in early 2020 or the contraction of 3 million bpd in mid-2008, the analyst said. @LCO.1 @CL.1 3M mountain Brent v. WTI “Still, the comparisons above suggests the oil market is discounting a substantial deterioration in supply/demand conditions,” Rats said, either though recession-like demand weakness, or the combination of soft demand with increasing supplies from OPEC. The difference between the first month and twelfth month Brent contract is suggesting crude oil inventories in developed economies will increase by 150 million barrels, according to the investment bank. In the past five U.S. recessions, these stockpiles built by 150 million to 220 million barrels. “This implies a demand slowdown similar to a mild recession,” Rats wrote. This crude inventory increase in developed economies would imply a 375 million barrel stockpile build worldwide, or 1 million bpd across an entire year, according to Morgan Stanley. Supply It may be that increasing supplies, rather than slowing demand due to a recession, are responsible for the inventory build that crude oil futures are signaling, according to the investment bank. OPEC+ is planning to increase production starting in December, and output in the U.S., Canada, Brazil and Guyana is robust. “Although rising OPEC output is a key factor behind the surplus we model for 2025, we would be hesitant to argue that this justifies the recent price decline,” Rats wrote. After all, prices have fallen despite the fact that OPEC+ has made clear the production increases are subject to market conditions. The group has already delayed them by two months. Morgan Stanley sees more historical precedent in 2013 and 1992 to 1993, when soft demand conspired with rising OPEC supplies to weaken the market balance without “recession-like deterioration.” “It’s best to keep an open mind but at this stage,” Rats wrote. “Demand indicators are concerning but it ******** too early to make ‘recession-like’ demand the base case,” he said.

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