Morgan Stanley Warns of Oil Price Plunge as OPEC+ Cracks Open the Floodgates

The oil market is bracing for a prolonged slump as OPEC+ accelerates production cuts unwinding, a strategy that has sent prices to multi-year lows and prompted Morgan Stanley to slash its 2025 crude forecasts. The cartel’s abrupt shift from supply discipline to aggressive output growth has reshaped the global energy landscape, with geopolitical tensions and weak demand amplifying the downturn.

OPEC+’s Strategic Shift: Punishment and Profit Over Price Stability

In early 2025, OPEC+ members, led by Saudi Arabia and Russia, announced a series of accelerated production hikes, reversing years of output cuts designed to stabilize prices. By June, cumulative increases totaled 957,000 barrels per day (bpd)—nearly half of the 2.2 million bpd in voluntary cuts implemented since 2022. The move was explicitly punitive, targeting chronic overproducers like Kazakhstan (which exceeded its quota by over 400,000 bpd in March) and Iraq, whose noncompliance had eroded the cartel’s credibility.

The strategy also reflects a broader calculus: prioritizing long-term market share over short-term price stability. “OPEC+ is effectively ceding its role as a price-supporting actor,” noted analysts, as the group’s actions have flooded the market with surplus crude. This shift coincides with U.S. President Donald Trump’s push to lower fuel costs amid escalating trade tariffs with China, raising questions about geopolitical coordination.

The Price Collapse: A Demand-Driven Market

The production surge has driven Brent crude to $58.50 per barrel and WTI to $55.53—their lowest levels since February 2021—by mid-May 2025. This decline marks a 20% drop from January highs, with further downside risks looming.

Analysts attribute the slump to a confluence of factors:
1. Supply Surplus: OPEC+’s accelerated output unwinding, combined with non-OPEC production growth (1.2 million bpd in 2025), has outpaced demand.
2. Demand Drag: U.S.-China trade tensions and reimposed tariffs have weakened global growth, with U.S. GDP contracting in Q1 2025 and Chinese manufacturing activity hitting a 16-month low.
3. Market Structure: The shift to contango—where near-month contracts trade below later ones—signals oversupply, deterring investment and increasing volatility.

Morgan Stanley’s Revisions: Bearish Outlook

Morgan Stanley, once a cautious optimist on oil, has become a leading voice of pessimism. In May 2025, the bank revised its Q2 2025 Brent forecast to $60 per barrel (down from $65) and its H2 2025 estimate to $57.50 (a $5 cut). For 2026, the bank now projects prices as low as $55 per barrel in early 2026, citing a 1.9 million bpd surplus by then.

The revisions underscore the severity of the supply-demand imbalance:
- 2025 surplus: Revised upward to 1.1 million bpd (from 700,000) due to OPEC+’s accelerated hikes and weaker demand.
- Demand Growth: Slashed to 700,000 bpd (2025) and 600,000 bpd (2026), far below non-OPEC supply additions.

Geopolitical Risks and Fiscal Pressures

The OPEC+ strategy carries profound risks. For Saudi Arabia, the de facto leader, the move is a gamble. The IMF estimates the kingdom requires $90 per barrel to fund its fiscal plans, yet current prices hover near $60—a gap that could force austerity measures or debt issuance. Meanwhile, the U.S.-China trade war shows no signs of abating, with tariffs threatening further demand erosion.

Market Volatility and the Road Ahead

OPEC+’s June 2025 meeting will be pivotal. If noncompliant members like Kazakhstan and Iraq continue to overproduce, further 411,000 bpd hikes could extend through October, deepening the surplus. Analysts warn that without demand recovery or stricter compliance, prices could test $50 per barrel by year-end.

Morgan Stanley’s scenarios paint a stark picture:
- Bearish case: Prices dip to mid-$50s if demand stagnates due to a global recession.
- Bullish case: A rebound to low-$70s if demand resilience and supply discipline materialize.

Conclusion: A New Era of Oil Market Volatility

OPEC+’s decision to prioritize punitive measures and market share over price stability has upended the oil market’s equilibrium. With prices at five-year lows and a surplus expected to widen, investors face a landscape of unprecedented uncertainty.

The numbers tell the story:
- Brent’s 20% drop since January 2025 signals a demand-driven market collapse.
- $90 vs. $60: Saudi Arabia’s fiscal needs versus current prices highlight a $30 gap in its budget breakeven.
- 1.9 million bpd surplus by 2026: A stark reminder of oversupply risks.

For now, the cartel’s gamble—sacrificing short-term revenue for long-term dominance—has investors bracing for prolonged volatility. As Morgan Stanley’s revisions make clear, the oil market’s next chapter hinges on whether OPEC+ can enforce compliance or if geopolitical and economic headwinds will keep prices anchored near $60 for years to come.