JPMorgan says oil prices still have further to rise because the market has not yet forced enough demand out of the system to offset the supply loss from the Iran war.
Global oil supply disruptions reached 9.1 million barrels per day in March and climbed to 13.7 million barrels per day in April, according to JPMorgan’s Natasha Kaneva. The first relief valve, spare capacity, has not worked because supply from Saudi Arabia and the United Arab Emirates remains cut off.
Inventories are being pulled instead. JPMorgan estimates global stocks fell by 4 million barrels per day in March and another 7.1 million barrels per day in April. Demand has also fallen hard, down 2.8 million barrels per day in March and 4.3 million barrels per day so far in April. That April demand drop is nearly double the decline seen during the global financial crisis.
Brent was trading near $105.40 per barrel Friday, up more than 70% so far this year, while WTI has been trading in the mid-$90s. JPMorgan says those prices are still not high enough to explain the scale of the demand loss. The bank’s conclusion is that physical shortages are suppressing consumption, especially in markets with little buffer.
The demand hit is concentrated in the Middle East, Asian frontier economies and Africa, which account for about 87% of JPMorgan’s estimated April demand loss. Those regions have less ability to absorb higher costs and less inventory protection.
JPMorgan says even after heavy inventory drawdowns of 8 million barrels per day, the market is still missing about 2 million barrels per day. Kaneva argues higher prices may be needed to force enough demand off the market.
That means Europe and the United States may have 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 war, according to GasBuddy data. Higher pump prices are starting to reduce driving, while higher airfares are weighing on flight demand.
Goldman Sachs separately estimates Persian Gulf oil output is down 57%, or 14.5 million barrels per day, from pre-war levels. That keeps the market pinned between falling supply, falling inventories and prices that still have not cleared enough demand.
