The oil market surplus that arrived in the second half of 2025 is predicted, by analysts at Morgan Stanley, to widen in early 2026, pushing the Brent forward curve into contango and dragging on front-month prices.
For the uninitiated, contango is a market condition where a commodity's futures price is higher than its current spot price, indicating the market expects prices to rise, often due to storage, financing, and insurance costs (cost of carry).
This, in turn, makes future delivery more expensive than immediate purchase
The American bank models a 1.9 million barrel-a-day surplus in 2026, smaller than some peers but still large enough to lift global inventories sharply.
It says stock builds are already visible, estimating 424 million barrels of crude and product inventory growth since late January 2025, with a higher China flow-based estimate implying 529 million barrels.
Morgan Stanley’s central call is that “the curve can do the work”. A steeper contango should incentivise storage as surplus barrels seek a home, including in OECD pricing hubs where builds were limited in 2025.
With the long end of the curve seen as resilient, it thinks spot Brent should find support in the mid to upper US$50s a barrel, even if prices drift into the mid-US$50s by mid-2026.
On supply, the bank sees non-OPEC growth slowing after a late-2025 spurt, and expects OPEC’s priority in 2026 to be negotiating a post-2026 framework, with scope for a small cut if prices fall below the mid-US$50s.