The global oil market is in very rare territory right now, with futures pricing that points to near-term tightness while also flagging a “meaningful surplus” further out, according to Morgan Stanley.
“The Brent forward curve has an unusual shape at the moment: downward sloping across the first nine contracts and upward sloping thereafter,” analysts including Martijn Rats and Charlotte Firkins said in a note. “This is so unusual that, in fact, there is little historical precedent,” they said.
Crude has been rocked this month by the fall-out from the US-led trade war, moves by OPEC+ to boost supply at a faster-than-expected clip, and growing expectations for a surplus. Those drivers have combined to spur a steep drop in headline prices in April — with Brent 12% lower — but simultaneously suggest a more complex underlying story about the timing of the glut.
At present, Brent’s nearer months are still pricier than those next in sequence, a pattern known as backwardation that’s seen as bullish as it shows traders are willing to pay a premium for more prompt barrels. But the curve flips to the opposite structure, known as contango, further into 2026.
“The contango after the ninth contract signals a rapid weakening later this year, with slowing demand and robust supply growth driving a surplus,” the analysts said. “In about 30 years’ of historical data, there has not been another period when the forward curve showed a ‘smile’ the way it currently does.”
Global benchmark Brent is expected to drop back into the low $60s-a-barrel later this year, according to Morgan Stanley, which retained its quarterly forecasts. Futures for the soon-to-expire front month of June were last below $65 a barrel, while those for July were about $1 lower.
“Trade tariffs will turn into a meaningful headwind for oil demand,” the analysts said. “Our crude balance shows a deficit in the third quarter, but this turns into a meaningful surplus thereafter.”
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