JPMorgan Forecasts Further Oil Price Increases Amid Supply Disruptions
JPMorgan projects continued oil price rises due to significant supply losses from the Iran conflict and insufficient demand reduction.
JPMorgan analysts indicate that oil prices are expected to rise further as the market has not yet reduced demand sufficiently to offset supply losses resulting from the conflict in Iran.
Global oil supply disruptions reached 9.1 million barrels per day in March and increased to 13.7 million barrels per day in April, according to Natasha Kaneva, head of Global Commodities Strategy at JPMorgan. The initial relief mechanism, spare capacity, has been ineffective due to continued supply cuts from Saudi Arabia and the United Arab Emirates.
Consequently, inventories are being drawn down. JPMorgan estimates that global stocks decreased by 4 million barrels per day in March and an additional 7.1 million barrels per day in April. Demand has also declined, falling by 2.8 million barrels per day in March and 4.3 million barrels per day so far in April. The April demand drop is nearly double the decline observed during the global financial crisis.
Brent crude was trading near $105.40 per barrel on Friday, up more than 70% this year, while West Texas Intermediate (WTI) has been trading in the mid-$90s. JPMorgan suggests that these prices are still not high enough to account for the scale of demand loss. The bank concludes that physical shortages are suppressing consumption, particularly in markets with limited buffers.
The demand impact is concentrated in the Middle East, Asian frontier economies, and Africa, which account for about 87% of JPMorgan's estimated April demand loss. These regions have less capacity to absorb higher costs and less inventory protection.
JPMorgan indicates that even after significant inventory drawdowns of 8 million barrels per day, the market is still short by about 2 million barrels per day. Kaneva argues that higher prices may be necessary to force sufficient demand off the market.
This suggests that Europe and the United States may need to absorb more of the demand adjustment. U.S. gasoline averaged $4.048 per gallon as of April 23, up from about $2.884 before the conflict, according to GasBuddy data. Higher pump prices are beginning to reduce driving, while increased airfares are affecting flight demand.
Goldman Sachs separately estimates that Persian Gulf oil output is down 57%, or 14.5 million barrels per day, from pre-conflict levels. This situation keeps the market constrained between falling supply, declining inventories, and prices that have yet to sufficiently reduce demand.
