Morgan Stanley lifts oil price forecast, forecast tight supply

Reuters - Morgan Stanley raised its oil price forecast for the first quarter of 2023 and forecast tight supply going forward due to a steep output cut agreed by OPEC producers and an EU embargo on Russian production.

The Organization of Petroleum Exporting Countries and allies including Russia agreed on Wednesday to reduce their output target by 2 million barrels per day bpm, which was slashed in 2020 when the COVID-19 epidemic hit, and added back production in Vienna after spending most of the last two years adding back production slashed.

In 2023, oil market has a 0.9 million barrels per day deficit, up from the previous 0.2 million barrels per day. Morgan Stanley said in a note on Wednesday that Russia's oil production will fall by 1 -- 1.5 million barrels per day after the EU's oil import embargo comes into force.

Morgan Stanley raised its first-quarter 2023 Brent price forecast to $100 per barrel from $95 per barrel, noting that Brent will find its way to $100 per barrel faster than we thought it would be in the first quarter of 2023. Benchmark Brent crude was trading around $93.29 per barrel as of 0656 GMT, after gaining 1.7% on Wednesday. Warren Patterson, head of commodities strategy at ING, said that the cut from OPEC dramatically changes the oil balance for the rest of 2022 and the whole of 2023.

Patterson said that the oil market is more balanced over the fourth quarter of 2022 and in large deficit over the whole of 2023 because of the removal of around 1.1 million barrels per day of supply.

This latest action from OPEC suggests that there is upside to our current full-year 2023 forecast of $97 per barrel. Citi Research believes that the final market impact of the OPEC production target cut will depend on the agreement's duration and that consumers will react with displeasure to the deal.