Is JP Morgan Right About Oil @$150 This Time?
On Friday, 22 Sep 2023 — $JPMorgan Chase(JPM)$ Hd of Europe, Middle East & Africa (EMEA) Energy Equity Research, Christyan Malek, warned that recent Brent price surge could continue rising to $150 per barrel by 2026 (see below).
Where Did This Forecast Stems From?
Briefly the few catalysts that went into the $150 price warning, includes:
Capacity shocks.
An Energy Supercycle.
Efforts to push the world further away from fossil fuels.
Recently, crude oil prices have surged on the back of OPEC+ production cuts, mostly led by Saudi Arabia who almost singlehanded took 1 Million bpd out of the market.
This was coordinately, followed by a fuel export ban from Russia.
Increased crude demand paired up with the supply restrictions, boosting crude oil prices and contributing to rising consumer prices.
On Fri, 22 Sep 2023 — Brent prices were trading around $93.55.
Mr Malek expects Brent prices between $90 & $110 next year 2024, and higher in 2025.
As told to Bloomberg, as Mr Malek, the analyst warned about [a] OPEC’s production cuts and [b] a lack of investment in new oil production — “Put your seatbelts on. It’s going to be a very volatile supercycle” he said.
In February 2023, JPMorgan has mentioned that Oil prices were unlikely to reach $100 per barrel this year not unless there was some major geopolitical event that rattled markets.
They also “warned” that OPEC+ could add in as much as 400,000 bpd to global supplies, with Russia’s oil exports potentially recovering by the middle of 2023.
Back then, JPMorgan estimated that China will need 770,000 bpd in demand growth.
An estimate that was less than what the International Energy Agency (IEA) and OPEC have estimated.
Image of fast forward
Fast forward to present, JPMorgan now sees:
Global supply and demand imbalance at 1.1 Million bpd in 2025.
And growing to a 7.1 Million bpd deficit in 2030 as robust demand continues to butt up against limited supply.
How I See It.
Even $Goldman Sachs(GS)$ is making a bold prediction about oil prices hitting the $100 per barrel mark this week.
Their argument is based on the followings:
Lower OPEC output combined with higher demand, "more than offset significantly higher US supply."
September 2023’s average gas price in the US was $3.875. This is +$0.20 (or +5.44%) higher than a year ago.
Even in the face of rising oil prices, sales of EV in the US have slowed down instead of picking up paces.
Energy transition efforts, including decreased investment in hydrocarbon production, have contributed to rising oil prices and increased reliance on fossil fuels in backup scenarios.
Offshore wind projects are being canceled, EV sales in the US are slowing down, and the solar industry faces competition from cheap Chinese panels, highlighting challenges in the renewable sector.
Despite clear setbacks, governments remain committed to their energy transition goals, potentially leading to even higher energy costs in both Europe and the US.
Based on IMF July 2023’s world economic outlook:
Global growth is projected to fall from an estimated 3.5% in 2022 to 3.0% in both 2023 & 2024.
The rise in central bank policy rates to fight inflation continues to weigh on economic activity.
Global headline expects inflation to fall from 8.7% (2022) > 6.8% (2023) > 5.2% (2024).
Inversely this implies that economic activities will pick up pace as global economies head towards 2024.
This will also mean that demand for oil will continue to grow from strength to strength.
With US’s Strategic Petroleum Reserves (SPR) at an all-time low, it will only be a matter of time before the Biden administration could no longer afford to further draw from the reserves.
When that happens, US oil demand will drive prices up based on the forces of demand & supply.
Will US be able to beat OPEC+, Saudi Arabia and Russia concerted effort to drive up oil prices (by output reduction) — its left to be seen.
The odds seem to be stacked against United States though.
More than ever, it is time to keep an eye on the Top 3 US oil stocks by market capitalisation — [a] $Exxon Mobil(XOM)$, [b] $Chevron(CVX)$ and [c] $ConocoPhillips(COP)$ .
Do you think JP Morgan will be right in their forecast this time round?
Do you think US will be able to further suppress oil prices from rising further?
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In Sep of 1990, 33 years ago, this stock sold for less than $4. Up more than 33 times that in 33 years.
Americans are feeling worse about the economy as gas, grocery prices rise. The feel-good vibes about a resilient US consumer and overall economy from the summer have cooled down. JPM is DOOMED!!!!
Banks depend on money from the fed to thrive and now the fed is actually contracting or shrinking the money supply. Last time this happened JP morgan stock fell to 22.85 that was 2008..
In 1970 it averaged $0.36 and went higher every year after in that decade.
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