Source: Zhitong Finance
J.P. Morgan chose to keep its oil price forecast unchanged.
Analysts at J.P. Morgan Chase wrote in a research report released on Wednesday that Russia's decision to deepen its oil production cuts may push the global benchmark crude oil price to nearly $100 per barrel by September, but disrupted demand may play a role in dampening price prospects.
On March 3, several OPEC+ member countries extended additional voluntary production cuts of 2.2 million barrels per day to support the stability and balance of the oil market. However, Russia unexpectedly stated that it will voluntarily cut crude oil production and exports by 471,000 barrels per day by the second quarter of this year. This is an additional production cut in addition to Russia's voluntary production cut of 500,000 barrels per day announced in April 2023 (extended until the end of December 2024).
An analyst at J.P. Morgan Chase, led by Natasha Kaneva, wrote: “The shift in Russian oil strategy is surprising. On the face of it, assuming no policy, supply, or demand response, Russia's actions could push the price of Brent crude oil to $90 in April, reach the mid-range of $90 by May, and close to $100 by September.”
Analysts added: “OPEC+ is now more likely to extend its oil production cuts in June until the end of the year, which may further fuel the rise in oil prices.” According to FactSet data, the trading price of Brent crude oil has risen by nearly 12% this year so far.
However, analysts at J.P. Morgan Chase point out that there are a variety of measures that can be quite effective in mitigating the impact of high prices. The most obvious short-term rebalancing mechanism is to reduce US Strategic Petroleum Reserve (SPR) crude oil inventories.
They pointed out that the rise in oil prices will continue to put pressure on the US government before the November presidential election. US gasoline prices may rise to 4 US dollars per gallon by May. J.P. Morgan analysts say this will be the highest price since the summer of 2022.
After the Biden administration made a record reduction in oil reserves in 2022 and made efforts to replenish them, SPR still has sufficient crude oil to protect America's national strategic needs and to cushion price increases. They estimate that the US government has policy space to release up to 60 million barrels of crude oil.
In addition to SPR, disrupting demand is another potentially powerful response to high oil prices, according to analysts at J.P. Morgan Chase.
They pointed out that given the strengthening of the US dollar and high borrowing costs, oil prices exceeding 90 US dollars will seriously disrupt global oil demand, which in turn will cause oil prices to fall.
Analysts say there are initial signs that consumers may already be reducing fuel consumption. The weekly travel situation of US drivers shows that the number of trips of 3 to 100 miles has been declining since the end of January, which coincides with the period when gasoline prices in the US began to rise.
Since various countermeasures can be an appropriate rebalancing mechanism for high oil prices, J.P. Morgan chose to keep its oil price forecast unchanged. The bank predicts that the average price of Brent crude oil in 2024 is 83 US dollars per barrel, and the average prices for the third and fourth quarters of this year will be 84 US dollars and 85 US dollars, respectively.