Morgan Stanley has significantly upgraded its Brent crude forecasts, now projecting a fourth-quarter 2026 peak near $100 a barrel as a slower Middle East supply recovery tightens the market. The bank's previous assumption of roughly $75 across all four quarters has been substantially revised upward. According to Morgan Stanley's latest analysis, Brent is expected to average around $90 a barrel in Q3 2026, before peaking near $100 in Q4 2026, then easing to about $95 in Q1 2027 and $90 in Q2 2027. The revision reflects a market tightening faster than the bank had anticipated, with oil held at sea dropping by roughly 170 million barrels since mid-July and onshore inventories declining across regions including China. As per Morgan Stanley strategist Michael Wilson, Brent crude prices will reach $100 per barrel (approximately NT$3,200) in the fourth quarter, up from the current range of $91 to $93 per barrel (approximately NT$2,900 to NT$3,000). The bank cited a slower than expected recovery in Middle East supply, a process it now expects to run well into 2027, keeping the market in deficit through Q4 2026 and Q1 2027.
The US Energy Information Administration (EIA) has raised its Brent crude forecast to $85 a barrel for Q3 2026, representing a $11 increase from its previous estimate. The EIA expects global oil inventories to decline by an average 4.2 million barrels per day between April-June 2026 and anticipates a further drawdown of 3.8 million b/d in Q3-CY26. The agency forecasts Brent to average $78 a barrel in Q4 2026 and expects prices to ease once traffic through the Strait of Hormuz gradually recovers. Rabobank has adopted a more bullish stance, raising its Brent forecast to $90 a barrel for both Q3 and Q4 2026, up from earlier estimates of around $88 and $86 respectively. The bank's forecast for 2027 has been raised to $86 a barrel, while the 2028 estimate has been increased to $79 a barrel. Rabobank expects Brent to remain volatile with $70-$75/bbl acting as lower-end support and $95-$100 forming the upper end of the range, noting that renewed disruption to oil flows through the Strait of Hormuz could push prices above $100/bbl.
According to Prashasta Seth, chief executive officer of Prudent Investment Managers, a sustained move in Brent crude above $100 a barrel could force investors to turn more cautious on Indian equities, corporate earnings, inflation and valuations. As reported by NDTV Profit, crude around $90 a barrel would not by itself break his equity thesis, but the bigger risk would be how long prices remain elevated. Seth noted that if crude stays around $90 for a few weeks, the economy can absorb it, but if prices sustain at $100-plus for two or three quarters, he would have to become more conservative on earnings, inflation and valuations. The risk comes as the Reserve Bank of India has kept the repo rate at 5.25% with a neutral stance, while projecting FY27 GDP growth of 6.7% and CPI inflation of 5%. Inflation is expected to rise to 5.9% in the third quarter, with the RBI's latest assessment assuming an average oil price of about $90 a barrel.
Recent data from Reuters Breakingviews reveals the severity of the current oil market tightening, with oil being carried at sea falling by 211 million barrels in the 40 days since mid-July, while oil stored in tanks on land dropped by another 94 million barrels. This means roughly 300 million fewer barrels were readily available to meet demand, with onshore stocks now about 93 million barrels below their seasonal average, having been 127 million above it in late March. The International Energy Agency (IEA) members had agreed in March to release 400 million barrels of emergency stocks, but by July, about 290 million barrels had been released - equivalent to roughly five weeks of the 8 million barrels a day of Middle Eastern supply estimated to be offline. China has helped absorb the shock by cutting crude imports sharply, while Gulf producers pushed more oil through alternative routes including Saudi Arabia's pipeline to Yanbu on the Red Sea and the United Arab Emirates's pipeline to Fujairah outside Hormuz.
In an earlier interview with The Economic Times, Seth had projected Indian companies could deliver mid-teen earnings growth in the current financial year if momentum from the June-quarter earnings season continued. However, sustained crude above $100 would change these calculations. As reported by NDTV Profit, if crude moves towards $100-plus and remains there, Seth would probably bring that expectation down by a few percentage points and become much more selective. "If crude moves towards $100-plus and remains there, I would probably bring that expectation down by a few percentage points and become much more selective," he said. The impact would vary across the market, with higher oil, gas and metal prices potentially supporting earnings for parts of the Nifty exposed to metals and global cyclicals, while mid- and small-cap companies could face greater margin pressure. Seth said he remained constructive on India's long-term prospects but had become more selective, noting "I am not changing the long-term India thesis because of one macro shock, but I would certainly not assume the same earnings and valuation assumptions that I would have made when crude was materially lower."
Seth noted that valuations had already corrected, with the Nifty's forward price-to-earnings multiple falling from roughly 24 times in September 2024 to around 19.3 times. According to his analysis, the currency could be another pressure point, as foreign investors measure returns in dollars and gains in Indian equities can be eroded by rupee depreciation. Seth said the rupee around ₹95-96 to the dollar remained manageable, but crude moving towards $100 alongside the rupee approaching ₹98-100 would become a bigger deterrent for foreign investors. "A 12% equity return becomes less attractive if the currency weakens by 5-6%. The key isn't a particular rupee level. It is avoiding disorderly depreciation," Seth said. For Seth, earnings remain the most important variable for Indian equities over the next 12 months, followed by crude oil prices. As per Morgan Stanley's recommendation, investors should use energy stocks to hedge potential portfolio risks, with Exxon Mobil (XOM-US) and Chevron (CVX-US) each rallying more than 30% year-to-date, more than double the S&P 500's advance.
