Morgan Stanley Unpicks Oil Market Riddle as Stockpiles Swell

As of July 15, 2025, Morgan Stanley has released an analysis addressing a key paradox in the global oil market: despite a significant surge in worldwide inventories, crude prices—particularly Brent—have remained relatively stable or even risen slightly. This report comes amid broader concerns over potential supply gluts driven by factors like the US-led trade war and the unwinding of OPEC+ production cuts. The bank’s commodities team argues that the riddle is solved by examining the uneven regional distribution of these stockpile builds, which minimizes their impact on key pricing benchmarks.

The analysis highlights that while global stockpiles have ballooned, the increases are concentrated in areas with limited influence on Atlantic Basin pricing, allowing for a tight near-term market structure where prompt prices exceed deferred ones. This has implications for traders and investors, as it suggests current tightness may give way to surpluses after the summer demand peak, potentially pressuring prices lower.

The Oil Market Paradox Explained

Morgan Stanley’s report frames the core riddle as: “Is the oil market actually tight? Or not?” Global inventories have swelled rapidly, yet Brent crude futures have held above $68 per barrel, defying expectations of downward pressure from excess supply. The bank attributes this to:

• Uneven Regional Builds: Most stockpile increases are occurring outside the Organization for Economic Cooperation and Development (OECD) countries, which are central to price formation. Builds in the Pacific region, for instance, have less bearing on Brent, which is priced in the Atlantic Basin.
• Oil-on-Water Surge: A notable portion of the inventory growth is in transit on tankers, reducing immediate visibility and impact on land-based storage metrics.
• Supply and Demand Dynamics: The market faces drags from escalating trade tensions and the gradual reversal of OPEC+ curbs, but current demand—bolstered by summer travel—supports tightness in key areas.

Analysts at Morgan Stanley noted: “What bridges this apparent contradiction is the uneven regional distribution of global inventory builds. Most of the inventory builds have taken place in locations that have less impact on prices, whilst inventories in key pricing centers have remained unusually tight – the builds have been in the Pacific, but Brent is priced in the Atlantic.”

Key Inventory Data

Global oil stockpiles have expanded substantially in recent months, but the distribution tells a nuanced story. Here’s a breakdown of the changes based on Morgan Stanley’s estimates:

These figures underscore that while overall supply is abundant, the lack of buildup in OECD hubs like the US and Europe keeps the market from signaling a clear oversupply.

Morgan Stanley’s Price Forecasts

The bank maintains a bearish outlook for oil prices in the medium term, anticipating a transition from current tightness to a surplus:

• Q4 2025: Brent at $65 per barrel.
• Each Quarter 2026: Brent at $60 per barrel.

This forecast assumes only a modest portion of the global surplus will manifest in OECD inventories, but enough to ease prices back to levels seen in 2017. At the time of the report, Brent futures were trading around $68.96, reflecting ongoing resilience.

Broader Market Implications

The analysis suggests the oil market’s current stability is fragile, hinging on seasonal demand and regional disparities. Post-summer, a “sizable surplus” could emerge, exacerbated by OPEC+ increasing output and geopolitical factors like trade wars. This could benefit consumers with lower energy costs but challenge producers and exporters. Investors should monitor inventory reports from agencies like the EIA and IEA for confirmation of these trends, as well as any shifts in OPEC+ policy. While some sources note potential recession signals from oil volatility, Morgan Stanley’s view focuses more on supply-side pressures rather than demand weakness. Overall, the report substantiates claims that the market’s riddle is not a true oversupply crisis yet, but one looms on the horizon.