Cyclicality is such a part of oil industry lore that it's tough to imagine a Goldilocks scenario (neither too hot nor too cold). Not for crude. Not for an industry famous for its booms and busts.

Making it harder is the passing of new milestones with increasing frequency. Last November, US crude production, at 7.7 million barrels (MMbbl) per day, surpassed import levels for the first time since early 1995. Within weeks, domestic crude output topped 8 MMbbl per day. Is it too much of a good thing? Are we kidding ourselves that this time it will end differently?

The Morgan Stanley commodity team, led by Adam Longson, acknowledges downside risks are growing, but says a supply glut is unlikely. Instead, the report predicts crude prices are likely to be range bound over the next five years, potentially setting up a “Goldilocks scenario” for producers and consumers.

This is not to underestimate the recent supply ramp.“The potential for global crude supply growth is greater than at any point in recent memory,” say the Morgan Stanley analysts. Nonetheless, the report forecasts that, on a full-year basis, Brent is unlikely to average below $95 to $100 per barrel. Under a base-case scenario, it sees Brent trending lower to average $103 and $98 per barrel for 2014 and 2015, before regaining traction to average $102, $104 and $108 per barrel for 2016, 2017 and 2018, respectively.

With global supply growth being front-end loaded, driven by further annual gains in North American production of slightly more than 1 MMbbl per day, “downside risk is concentrated in 2014-2015,” predicts the Morgan Stanley team. Looking ahead to the second half of the decade, supply growth is expected to slow—and oil prices to firm—reflecting the impact of “large decline rates for tight oil, a leaner project slate, and a growing reliance on expensive ultra deep-water projects.”

So with crunch time looming this year and next, what keeps crude prices from sliding more steeply?

Oil prices are expected to be “surprisingly resilient given a number of offsets and feedback loops,” the report's authors say. “If anything, the trend in oil prices and OPEC production is likely to produce a Goldilocks scenario where volatility is lower and prices are high enough to support producer investment, but low enough to avoid notable demand destruction or stress global GDP.”

Among “offsets” is the risk to supply growth due to rising project complexity, geopolitical factors affecting producers such as Libya, Iraq and Nigeria, and more frequent outages. Production in Libya is assumed to average 600,000 to 800,000 barrels per day for much of 2014 and early 2015, but “could easily disappoint.” In Iraq, sectarian violence is on the rise, with attacks on infrastructure more prevalent.

Importantly, Saudi Arabia is expected to act to cut production and balance the market. Producing at a near record level of more than 10 million barrels per day in the third quarter of last year, “Saudi Arabia has both the ability and the will to cut production to defend prices,” according to the report.“Saudi Arabia has stated it prefers to produce less than its capacity to better manage decline rates.”

While the call on overall OPEC crude is projected to stay roughly constant in 2014-2016 at about 30.5 MMbbl, the call on Saudi Arabian crude is expected to drop to 9.4 million per day in 2014 and to around 9 million per day in 2015 and 2016, under the base case.“Only in our bear case, with the return of Iran, Nigeria and Libya, does the call on Saudi Arabia fall to levels that may be concerning.”

In terms of the “often ignored” area of feedback loops, Morgan Stanley says oil demand is surprisingly elastic, contrary to conventional wisdom.If prices slip in a Goldilocks scenario, there is risk that demand growth accelerates beyond its base-case assumptions as global growth improves.

On the supply side, too, greater elasticity has come with the advent of shale. Plentiful growth in North America is evident at favorable prices, but lower oil prices will reduce realizations and cash flow—even for low-cost shale producers—and quickly curtail capex and investment.

And with supply no longer as dependent on deepwater projects with five-year or longer lead times, shale should help reduce future oil price volatility. Rather than causing a collapse in oil prices, tight oil should be viewed as merely “the latest iteration” in a supply cycle, offering “a reprieve, but not a permanent solution.”

Not too hot, and not too cold? Maybe it's not just a fairy tale after all.