MW The 'simple math' why oil prices need to rise a lot more, according to JPMorgan
By Barbara Kollmeyer
Premium gasoline prices above $6 per gallon and diesel fuel prices above $7 a gallon are displayed outside of a Shell gas station in West Hollywood, California on April 14, 2026. JPMorgan says brace for much higher prices.
A JPMorgan commodities analyst who has irritated Treasury Secretary Scott Bessent over her Iran-war analysis is out with a new warning that a massive energy-price spike will be needed to fix a gaping hole in supply.
Calling it "simple math," Natasha Kaneva and her team explain that commodity markets are always forced into equilibrium, that supply and inventory withdrawals must meet consumption.
"Oil is the clearest example because short-run demand is relatively inelastic: transportation still needs gasoline and diesel, airlines still need jet fuel, and petrochemical plans still need feedstock," she said in a note Thursday.
Just a small supply loss can cause "outsize" price action as the market tries to ration the remaining few barrels. So in a major disruption such as the current blockage of the Strait of Hormuz, this is how that equilibrium should be reached: spare capacity activated, inventories drawn, emergency releases of supply, refinery run cuts and finally higher prices that force demand lower.
But Kaneva said "something is off" with that chain of events.
Global supply disruption totaled 9.1 million barrels a day in March and is up to 13.7 million barrels in April, but the first lever of spare capacity failed to engage due to cutoff of supply from Saudi Arabia and the United Arab Emirates.
Inventory draws have been triggered, with JPMorgan estimating 4 million barrels was tapped in March and a massive 7.1 million more in April.
Global demand, meanwhile, has dropped by 2.8 million barrels a day in March, and another 4.3 million barrels per day in April thus far - nearly double what was seen during the global financial crisis. But that's with futures markets around $100 per barrel.
JPMorgan graph shows the change in global oil inventory since the Iran war began in late February.
Brent crude prices (BRN00) were up over 1.6% on Friday to $100.89 a barrel, and have gained 65% so far this year, yet still haven't traded as high as they were during the start of Russia's invasion of Ukraine.
She says those prices aren't high enough to explain the drop in demand, and what's likely happening is missing supply. "Put differently, physical shortages are constraining actual consumption, so what appears to be demand destruction is a supply loss showing up on the demand side of the ledger."
Demand loss is being seen chiefly in the Middle East, Asian frontier economies and Africa, which has little surplus and scant ability to absorb higher costs. These regions account for about 87% of the 4.3 million April demand hit, she estimates.
"The issue is arithmetic. If roughly 14 [million barrels] of supply has to be removed, and even assuming an aggressive 8 [million] contribution from inventory draws, the market would still need to clear an additional 2 [million] through lower demand or through even larger inventory draws," she said.
There's still 2 million of lower demand that has to come from somewhere and emerging markets just can't absorb it.
"In practical terms, Europe and the U.S would also need to participate. For that to happen, prices would likely need to rise further," Kaneva said.
Europe tightening has already started, with disruptions to the already strained diesel and jet fuel markets, and she sees more weak demand for jet fuel in Asia and Europe for May as activity gets scaled back.
While the U.S. and Americas have more domestic supply and inventory buffers, the analyst says higher pump prices are starting to cut into driving in the U.S., as rising airfares soften demand for flights.
"Gasoline prices have risen far less than distillates so far, reflecting limited reliance on Gulf supply. That insulation is likely to fade, however, as refinery constraints tighten broader product balances, especially as seasonal demand strengthens into the U.S. summer driving season," she said.
President Donald Trump said Thursday that Americans should expect to pay higher gas prices "for a little while," saying he doesn't want to rush a deal to end the war in Iran.
U.S. gasoline prices averaged $4.048 per gallon as of April 23, a sharp rise from around $2.884 per gallon before the war started, according to GasBuddy data.
-Barbara Kollmeyer
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(END) Dow Jones Newswires
April 24, 2026 05:57 ET (09:57 GMT)
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