Morgan Stanley analysts on Sunday said Saturday's announcement by OPEC+ that it will increase June output by 411,000 b/d for a second straight month will widen the supply surplus this year and next, leading it to drop its Brent crude price forecast.

Under the decision, OPEC and allied producers raised their required production levels by about 960,000 b/d from March to June. The bank's analysts, however, said that with compensatory output cuts, the total could come in a bit lower.

Several news outlets last week reported that the group had likely decided to boost output and Morgan analysts said they were not surprised by the decision.

Still, the analysts said the increase "points toward a production trajectory that is meaningfully higher than our prior modelling assumption and weighs negatively on our oil price outlook."

Before the announcement, Morgan had estimated supply would outpace demand by about 700,000 b/d in the second half of 2025 and by 1.5 million b/d in 2026.

The bank said Saturday's planned increase will widen the global crude oil surplus by another 400,000 b/d to 1.1 million b/d in the second half of this year and to 1.9 million b/d in 2026.

Based on the OPEC+ actions, Morgan said it believes the group may unwind production cuts faster than had been expected.

"We now assume not only the [411,000 b/d] quota increase in June, but steady monthly increases of about [130,000 b/d] each month toward the end of Q3. Much remains uncertain, but this would already lead to such a surplus that we still assume that OPEC+ will flatline its quota from October 2025 onward," the report said.

Citing the higher output, Morgan said it believes Brent prices will slide to the mid-$50s/bbl by the middle of next year.

The bank also compared the current selloff in crude prices to similar price declines during the 2008-2009 financial crisis, the 2014-2015 economic downturn and 2020, when the Covid-19 pandemic led to sharp drops in demand. The bank said it believes the current market outlook is not as severe as it was during those three previous periods.

"Therefore, lower than mid-$50s is not our forecast. Still if demand is impacted by tariffs in the way we expect, then either OPEC or non-OPEC [producers] will need to balance the market eventually," the bank added.

The Morgan analysts said prices will likely continue to fall until one of two things happens - non-OPEC production, most likely short-cycle U.S. shale output slows, or OPEC returns to supply restraints.

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 Jeff Barber, jbarber@opisnet.com

(END) Dow Jones Newswires

May 05, 2025 12:17 ET (16:17 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.