Bloomberg reported that JPMorgan Chase & Company raised its oil price forecasts because OPEC and other producers aren’t matching rising demand and consumers will take time to react to higher prices.
The bank boosted its 2011 Brent crude forecast to USD 120 per barrel from USD 110 and changed its estimate for West Texas Intermediate crude to USD 109.50 from USD 99. Forecasts for 2012 prices were raised to USD 120 and USD 114 respectively.
JPMorgan analysts led by New York based Lawrence Eagles said that while financial bushfires or perhaps a rapid resolution to the Libyan civil war could radically alter market dynamics, the balance of both risks and fundamentals still points to a supply constrained world.
Oil futures posted their biggest weekly decline since December 2008 last week amid concern about the pace of the economic recovery with London traded Brent plunging 13% to USD 109.13.
JPMorgan forecasts supply to fall short of demand by 600,000 barrels per day during the Q3 even with the assumption that the Organization of Petroleum Exporting Countries increases output by 1.2 million barrels per day in coming months.
The bank said that the gap could narrow to 300,000 barrels per day by the Q4 assuming Saudi Arabia increases production to 9.5 million barrels per day, Angola to 1.7 million and Iraq to 3 million though that may prove a stretch. Output from those three OPEC countries in March was 8.66 million, 1.56 million and 2.69 million barrels a day respectively.
The New York based bank said that consumers draw on stockpiles when production fails to match demand. Still with inventories already below the 5 year average any supply gap will have to be balanced by lower demand growth rationed by higher prices.
Next quarter there’s a risk oil may move toward record levels near USD 150 set in 2008, unless there’s a surprise increase in OPEC output beyond 29.4 million barrels per day or slower economic growth. JPMorgan forecast Brent to average USD 130 and WTI USD 116 during the July to September period.
While the bank lowered its estimate of world demand by 100,000 barrels per day in part because of the earthquake led disruptions in Japan, it raised its forecast for Chinese consumption, saying data implies China’s crude oil inventories have been drawn heavily in the past six months.
(Sourced from Bloomberg.net)
