• Morgan Stanley (MS) raises its Q4 2026 Brent forecast to $105 a barrel from $100, and Q1 2027 to $100 from $95.
  • The revision reflects persistent Middle East export disruptions, depleted inventories, and record-high shipping costs.
  • The bank still expects a $5 decline between Q4 and Q1, signaling oil stays expensive for longer rather than an uninterrupted spike.

Higher for Longer

Morgan Stanley has nudged up its near-term oil price outlook, raising its Brent forecast for the fourth quarter of 2026 to $105 a barrel from $100, and for the first quarter of 2027 to $100 a barrel from $95, according to a research note released Monday. The roughly 5% increase for both periods underscores the bank’s view that supply constraints will keep crude elevated well into next year.

The revision comes as Brent December futures settled at $106.65 on October 12, up 1.8%, amid unrelenting concerns over Middle Eastern supply. The U.S. Energy Information Administration’s October outlook independently projects Brent at $105 in Q4 2026, aligning with Morgan Stanley’s new estimate. The EIA also expects 4.5 million barrels a day of Middle Eastern production to remain shut in during the quarter and global inventories to decline by another 0.7 million barrels a day.

“Pressure on global energy supplies will intensify until the Strait of Hormuz fully reopens,” Saudi Aramco (2222.SR) CEO Amin Nasser warned on October 12. His comments reflect growing unease among producers and traders as attacks on infrastructure and tankers push insurance costs to record highs and force longer voyages.

Supply Squeeze, Not Demand Pull

The drivers behind the upward revision are largely supply-side. Persistent export disruptions, depleted inventories, and elevated shipping costs have combined to keep delivered crude prices high, even as demand growth remains moderate. The EIA reported that Middle Eastern production shut-ins peaked at approximately 10.9 million barrels a day in May, before falling to 4.8 million in September. September attacks on Saudi Arabia’s East-West pipeline disrupted a major route bypassing Hormuz, sending Brent spot to $131 on September 15; the monthly average rose to $114, $23 above August.

Partial pipeline restoration from September 22 helped prices ease, but the market remains tight. Refiners face higher delivered costs even when headline crude prices dip, as tanker rates stay elevated. Diesel, in particular, is a concern because freight and production costs can pass through into goods prices.

Market and Economic Implications

For consumers and fuel-intensive businesses, the outlook points to continued cost pressure. Moody’s Analytics (MCO) chief economist Mark Zandi estimated that the wider Iran conflict had added about $2,000 in costs per average U.S. household since late February. That figure is a model-based estimate of the conflict’s overall impact, not a direct result of Morgan Stanley’s revision.

Oil producers able to maintain exports stand to benefit from higher selling prices, but those hit by disruptions may lose volumes. The EIA’s simultaneous forecast of high prices and substantial shut-ins illustrates why higher Brent does not automatically translate into higher revenue for every exporter. For policymakers, the concern is inflation persisting alongside weaker household purchasing power.

Morgan Stanley’s revised path still anticipates a $5 decline between Q4 2026 and Q1 2027, suggesting the bank sees oil remaining expensive for longer rather than an uninterrupted increase. Previous reporting described its forecasts as quarterly averages and said it expected an oil-market deficit through Q1 2027. Without the full note, changes to its later-2027 forecasts could not be confirmed.

The bank itself continues to perform strongly. In Q2 2026, Morgan Stanley reported net revenue of $21.35 billion, up 27% year over year, and net income attributable to Morgan Stanley of $5.58 billion, up 58%. Diluted earnings per share came in at $3.46, versus $2.13 a year earlier. Its Wealth and Investment Management businesses reached $10 trillion in combined client assets. Q3 results were scheduled for October 14.

What to Watch

The most useful indicators in the coming weeks will be physical export volumes, infrastructure repairs, inventory changes, and diplomatic developments. The EIA expects most regional production to return to pre-conflict averages by the end of Q2 2027, but explicitly warns that actual short-term volatility may exceed what its forecast captures.

Other banks have also adjusted their views. Goldman Sachs (GS) raised its December Brent target to $90 from $85 on October 12, while BMI expects Brent to remain above $100 for months. These estimates are not directly comparable, as they cover different periods and methodologies.

A potential U.S.–Iran deal by the end of Q1 2027 could ease tensions and lower prices faster than forecast. Conversely, further infrastructure attacks or shipping constraints could prolong high prices. For now, Morgan Stanley’s revision adds to the chorus of voices warning that the oil market will remain tight for the foreseeable future.

Correction: An earlier version of this article misstated the percentage increase for Q1 2027. It is approximately 5.3%, not 5.0%.