Morgan Stanley raised its forecast for Brent crude prices by $7.50 to $85 a barrel for the second half of 2018.
The bank expects the oil market to be undersupplied as tougher-than-anticipated U.S. sanctions cut off Iran's crude exports and output in Libya and Angola falls more than expected.
Production increases from Saudi Arabia, Russia, the UAE and Kuwait will not be enough to balance the market, Morgan Stanley says.
Oil prices will rise more than previously expected in the second half of 2018, as the Trump administration aims to wipe out Iranian crude exports by November, Morgan Stanley forecasts.
The tougher-than-anticipated U.S. policy means Iran's production could fall by 1.1 million barrels per day (bpd) at a time of high oil demand. The bank also sees output declining more than it previously forecast in Libya and Angola, leaving the oil market undersupplied by about 600,000 bpd in the second half.
As a result, Morgan Stanley said it now believes international benchmark Brent crude will average $85 a barrel over the next six months. That's $7.50 higher than its previous estimate.
Brent is trading around $78 a barrel, just off its 3½-year high of $80.50 from May. The contract rose 5 percent last week, when a senior State Department official told reporters the administration is pushing oil buyers to cut off all crude purchases from Iran by Nov. 4.
Brent crude 1-year performance
Morgan Stanley said it previously thought Iranian output would start to decline after November, the end of a 180-period the Trump administration set for winding down business ties with Iran when it restored sanctions on the country in May. In that scenario, the bank saw Iran losing 700,000 bpd through 2019.
Now, Morgan Stanley said it thinks Iran's oil exports to Europe, Japan and South Korea — which account for about 1 million bpd of its 2.7 million bpd of shipments — will "fall to minimal levels."
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