JPMorgan: The geopolitical situation will be felt in the price of oil, in the coming period

Crude oil futures have risen in recent weeks on international exchanges amid heightened geopolitical tensions and high market volatility, according to analysts at JPMorgan Commodities Research, who believe Brent oil prices could reach an average of $80/barrel in fourth quarter of 2024.

"The current geopolitical situation suggests that, given the low level of oil stocks, there could be an increase in the price of crude oil until the conflict is resolved," said Nataşa Kaneva, head of Global Commodity Strategy at JPMorgan. It adds: "Unlike the situation last October (n.a. the Hamas terrorist attack in the Gaza Strip), when the "geopolitical premium" was included in the price of oil at least partially, this time Brent oil futures are trading in accordance with their fair value, and the upward risk trend is expressed by options".

JPMorgan Commodities Research notes that since the outbreak of the Gaza conflict last October, gains in oil prices have been short-lived as crude output has been largely uninterrupted. But that could change if Israeli strikes target Iran's energy infrastructure, including export terminals, oil and gas fields, power plants and storage facilities.

Kaneva says: "This option is unlikely to be favored by the US administration, which is cautious about oil markets in the weeks leading up to the presidential election. However, until the conflict is resolved, we could observe a sustained geopolitical premium in the price of crude oil".

Another major difference from the situation in 2023 is that global oil stocks are much lower today, the source said, adding that global crude stocks currently stand at 4.4 billion barrels - the lowest level since January 2017 and well below last year's level, when Brent oil was trading at $92/barrel.

Meanwhile, crude oil inventories in OECD countries are below their five-year average, according to JPMorgan.

Kaneva concludes: "The price is a response to the use of oil stocks, the use of which depends on the willingness of consumers to deplete or refuel them. With the anticipation of an oversupplied market in 2025, oil consumers have so far opted to wait, causing the price of oil to drift away from its fair value. However, changing dynamics in the Middle East could create a greater urgency to replenish stocks, thus realigning the price of oil to its fundamental level."

JPMorgan Commodities Research estimates that Brent crude could average $80/bbl in the fourth quarter of 2024 and $75/bbl in 2025, falling to $60/bbl by the end of 2025.

The futures price of a barrel of Brent oil for December delivery fell by 0.08% in the first part of the day yesterday, at ICE Futures Europe, reaching $74.16. On Nymex USA, the price of West Texas Intermediate (WTI) oil for November delivery fell by 0.1%, to $70.32 a barrel at 06:42 local time.

• IEA: "Demand for fossil fuels will peak by the end of the decade"

The world is on the brink of a new age of electricity, with demand for fossil fuels set to peak by the end of the decade, meaning a glut of oil and gas could lead to investment in green energy, the annual report released Wednesday said. by the International Energy Agency (IEA), reports Reuters, according to Agerpres.

But the Paris-based organization drew attention to the increased level of uncertainty, following conflicts around oil and gas producing areas - the Middle East and Russia - and elections this year in countries that account for half of global demand. energetic.

"In the second part of this decade, against the background of the prospects of larger deliveries, or even a surplus, of oil and natural gas, depending on how geopolitical tensions will evolve, we will enter a totally different world in terms of energy" , stated the general director of the IEA, Fatih Birol.

According to the quoted source, the surplus in the supply of fossil fuels will probably lead to lower prices and could lead countries to allocate more resources to green energy, arriving "in a new age of electricity".

In the nearer future, there is also the possibility of supply cuts if conflict in the Middle East disrupts crude oil flows. Such conflicts highlight the pressure on the energy system and the need for investments to accelerate the transition to "cleaner and safer technologies", the report states.

Globally, a record level of green energy entered the system last year, including more than 560 gigawatts (GW) of renewable energy capacity. The IEA expects that this year approximately 2,000 billion dollars will be invested in green energy, almost double the investment in fossil fuels. However, clean energy generation is not keeping pace with increasing global electricity demand, and the trend is set to continue in the period 2023-2030, so coal use will decline much more slowly than previously estimated, warns the IEA.

As a result, the share of fossil fuels in the global energy mix is estimated at 75% in 2030, compared to a level of 80% today. Last year, the IEA predicted that the share of fossil fuels in the global energy mix would be 73% in 2030.

Demand for fossil fuels will peak by the end of the decade at nearly 102 million barrels per day, then decline to 99 million barrels per day by 2035 amid growing electric vehicle use. According to the IEA, the price of a barrel of crude oil would drop to $75 in 2050, from $82 in 2023.