- JPMorgan's (JPM:US) commodities strategy team has issued a warning that if the Strait of Hormuz remains closed for an extended period amid escalating geopolitical tensions, Brent crude oil prices could face upward pressure towards the $150 per barrel mark, reshaping macro pricing benchmarks.
- The global oil supply chain is experiencing significant disruptions, with a total supply interruption of 13.7 million barrels per day last month, accounting for 14% of global demand. With core oil-producing countries' spare capacity output hindered, the market is now relying on an extremely high inventory drawdown rate of 7.1 million barrels per day to fill the gap.
- The transmission chain of inflation and monetary policy is further extended. The expected sharp rise in energy costs is anticipated to push the U.S. Consumer Price Index (CPI) in May to rebound to 4%, and this structural inflation pressure may substantially delay the Federal Reserve's (Fed) window for lowering the benchmark interest rate until 2027.
Severe Imbalance in Oil Market Supply and Demand with Rapid Inventory Decline
The current global energy market is facing an unprecedented supply-side shock. According to data estimates by Natasha Kaneva, head of global commodities strategy at JPMorgan (JPM:US), a supply disruption of up to 13.7 million barrels per day in a single month has exceeded the limits of conventional market adjustment mechanisms. Due to geopolitical conflicts blocking key channels, a large amount of spare capacity from major Gulf oil-producing countries like Saudi Arabia and the United Arab Emirates cannot be converted into effective supply entering global trade circulation. Facing a supply gap that accounts for 14% of total global demand, the global oil market can only consume strategic and commercial inventories at a historic rate of 7.1 million barrels per day. Nevertheless, the spot market still faces a rigid shortage of about 2 million barrels per day, and this deep supply-demand imbalance is continuously driving up the risk premium of near-month contracts.
Transmission of Terminal Energy Costs to Macroeconomic Data
The high upstream oil prices are rapidly transmitting to the end consumer market. By late April, the national average price of regular gasoline in the U.S. had risen to $4.05 per gallon, a significant increase from the pre-conflict benchmark level of about $2.88. This substantial rise in basic energy usage costs is directly suppressing the behavior of microeconomic entities. High fuel expenditures are beginning to squeeze residents' budgets for other discretionary consumer goods, while demand for air travel and road transport is also under significant pressure. JPMorgan's (JPM:US) analysis indicates that this demand destruction caused by soaring prices led to a sharp month-on-month drop in global oil demand by 4.3 million barrels per day in April, a decline even twice the magnitude of the peak drop during the 2008 financial crisis.
Outlook for Future Oil Price Volatility Range
Regarding pricing prospects, institutions have made scenario assumptions about the volatility range of benchmark oil prices. In the base scenario, if key strait shipping resumes in June, the average price of Brent crude oil (Brent) this year is expected to remain at a high level of $96 per barrel. However, if the channel disruption continues until mid-month, the exacerbated supply-demand mismatch could push Brent crude prices into a wide fluctuation range of $120 to $130 per barrel, with the possibility of reaching $150 per barrel in extreme cases. It is worth noting that JPMorgan (JPM:US) also warns of the reversal risk in the forward market: once geopolitical tensions ease and Persian Gulf oil-producing countries ramp up production to compensate for previous losses after the channel reopens, the oil market may quickly shift to a supply surplus pattern by September this year, introducing significant downside variables for price trends in the fourth quarter.
Substantial Delay in Fed Rate Cut Expectations
The systemic rise in energy prices has the most destructive impact on the macroeconomy by reshaping the inflation path. JPMorgan's (JPM:US) fundamental forecast model shows that driven by the energy component, the year-on-year growth rate of the U.S. Consumer Price Index (CPI) in May will inevitably reach a high of 4%, and the process of falling back to 3% by the end of the year will be extremely slow. In the most pessimistic scenario, if oil prices remain stable above $120 during the high-energy consumption period in summer, the U.S. CPI growth rate may even exceed 5%. The model further indicates that until April 2027, the macro conditions for core and nominal inflation indicators to substantially fall below the 2% policy target will not be met. This forecast path means that in the foreseeable future quarters, the Fed (Fed) will face inflation stickiness far beyond market expectations at the beginning of the year, and the probability of starting a rate cut cycle within the year has been completely ruled out by the data, with a high-interest-rate environment expected to persist for a longer time.
