Morgan Stanley on Wednesday said it expects Brent crude oil prices to rally to around $110 per barrel level by mid-2023, citing support from rising demand and continued supply tightness.

"We remain constructive on oil prices driven by recovering demand (China reopening, aviation recovering) amid constrained supply due to low levels of investment, risks to Russia supply, the end of SPR releases, and slowdown of U.S. shale," the U.S. investment bank said in note.

Oil prices rose on Wednesday after OPEC and the International Energy Agency (IEA) both forecast a rebound in demand over the course of next year.

Macroeconomic headwinds will push the market into a slight oversupply and likely keep prices somewhat range-bound through the first quarter, the bank said.

But Morgan Stanley's oil strategist Martijn Rats sees the market returning to balance in second quarter and tightening further in the second half of 2023.

For U.S. gas, the bank sees new supply outpacing demand next year, resulting in a looser balance and posing downside risks to post-winter prices.