The Trump administration’s tariff policies and its promise to impose stronger sanctions against Iran could crimp demand in the more oil-intensive parts of the global economy and bring crude-oil demand and supply more into balance by the second half of the year, Morgan Stanley said, Report informs referring to MarketWatch.
In a note to clients, the investment bank said Monday the increased uncertainty over oil demand because of the White House policies could lead OPEC+ member nations to extend current production cuts again.
“Over just the last five weeks, oil market participants have had to deal with new sanctions on Russia’s oil industry, tariffs on Mexico and Canada — which were quickly suspended — additional tariffs and counter-tariffs on China, and more sanctions on Iran, including a return to the ‘maximum pressure campaign’ with the stated aim of ‘driving Iran’s oil exports to zero’,” Morgan said.
The report said the increased trade tensions will likely weaken demand given that tariffs can potentially hit the most oil-intensive segments of the economy the hardest.
Lower demand and resulting uncertainty, the bank said, will likely lead OPEC+ to delay the gradual unwinding of 2023 and 2024 production cuts, a process the organization had planned to begin on April 1.
“[A]dding supply into a period of rising trade tensions is not a compelling prospect and we suspect that OPEC+ will avoid this,” the report said. While Morgan made no changes to its previous oil demand estimates for this year, it said there is the potential that supply will be lower than previously assumed in the back half of the year. An extension of OPEC+ cuts would reduce the bank’s supply forecast by 400,000 b/d.
In addition, the bank said Russia has begun to see a decline in its oil exports and the country’s crude output, which has been resilient, could drop by 150,000 b/d in the second half of the year.
Morgan said based on its look at crude-oil and oil product markets, global stocks have risen by about 600,000 b/d so far in the first quarter and its models predict a fairly sizable 1 million b/d second-quarter increase.
Given the typical jump in demand from the 2Q to 3Q and downward revisions in supply projections, the bank’s analysts said they believe an expected supply surplus in the second half of 2025 will give way to roughly 200,000 b/d supply deficit.
Morgan also trimmed its 1Q Brent crude price forecast by $2.50 to $75/bbl. The bank said that since 2007, the most common inflation-adjusted Brent price in 2025 dollars has been $77/bbl. Brent settled the U.S. trading day Monday at $75.87/bbl, leaving the average prices so far this year at $77.69/bbl.
