🛢 JP Morgan Warns Oil Market Out of Balance, Prices Must Rise

🔸The closure of the Strait of Hormuz, through which roughly 20% of the world’s oil flows, has removed 13.7 million barrels per day from global supply in April alone. A JP Morgan research note warns the market has no good way to replace it.

🔸Normally, spare production capacity in Saudi Arabia and the UAE acts as the market’s shock absorber. But that buffer has effectively been removed, eliminating the system’s first line of defense.

🔸With spare capacity unavailable, markets turned to inventories
➤ Global stockpiles are now being drained at ~7.1 mbd in April, an extraordinary pace, according to the note.

🔸Meanwhile, demand is collapsing because supply simply isn’t reaching users — “forced demand destruction.”The hardest hit sectors include:
▪️ Petrochemical plants across Asia are shutting down or slashing output as LPG, ethane, and naphtha flows from the Gulf collapse
▪️ Airline jet fuel costs account for 11% of total demand loss, with Middle East routes largely grounded and margins under pressure

🔸Even after accounting for falling demand and emergency reserve releases, JP Morgan says a gap of 2.3 million barrels per day remains with no clear fix.

🔸U.S. shale is the only large, flexible supply source left, but it can’t scale fast enough. JPM stresses shale needs 3–6 months for meaningful output gains, and 6–12 months for large increases. That’s too slow for a shock happening now.

🔸Brent prices diverged in April, with futures averaging about $99.7 per barrel while physical “dated Brent” rose to $121.6, signaling tighter real-world supply. The note concludes prices are high, but likely not high enough yet to fully reflect the shortage.

🔗 Dropsite