Summary of J.P. Morgan Oil Markets Weekly (February 13, 2025) Industry Overview - The report focuses on the global oil market, particularly the dynamics surrounding Brent crude oil pricing and Russian oil production amidst geopolitical tensions and sanctions. Key Points and Arguments Brent Crude Pricing Outlook - Brent crude is currently trading below the fair value estimate of 73 for 2025, and a projected price trajectory reaching 60s by year-end [1][1] - For 2026, a further decline in Brent prices is expected, with projections suggesting prices below 61 [1][1] Demand and Supply Dynamics - A robust demand growth of approximately 1.1 million barrels per day (mbd) is anticipated for 2025, followed by an additional 1.3 mbd in 2026, aligning with historical trends [1][1] - This demand growth is expected to be offset by strong non-OPEC supply growth, particularly from deep-water production [1][1] Geopolitical Factors - The outlook assumes a ceasefire between Russia and Ukraine, influenced by potential peace talks under a Trump administration, which could lead to increased global oil demand in 2026 [1][1] - Recent developments, including a phone call between Trump and Putin, have led to a temporary increase in oil prices, reflecting market expectations of negotiations potentially lifting Western sanctions on Russian energy [1][1] Russian Oil Production Insights - The assumption that a ceasefire will lead to a resumption of large-scale Russian oil flows is considered misplaced; Russia is likely cutting production as part of its OPEC+ commitments rather than in response to sanctions [2][2] - Current spare capacity in Russia is estimated at around 350 kbd, limiting its ability to regain market share compared to Saudi Arabia, which has a spare capacity of 1.5 mbd [5][5] Sanctions and Market Impact - The latest sanctions are expected to have a limited impact on Russian oil shipments, primarily resulting in shifts in trade flows rather than significant production changes [7][7] - Despite sanctions, Russian oil flows have remained resilient, although some deliveries have not been completed [8][8] Refinery Operations and Challenges - Russian refinery runs have faced challenges, averaging 5.3 mbd in January, below pre-war levels, with ongoing drone strikes affecting refinery capacity [22][22] - The Ryazan refinery is expected to restart operations by February 17, while other facilities face longer shutdowns [23][23] Future Production Constraints - Medium-term production constraints for Russia are attributed to halted greenfield developments and exploration over the past four years due to COVID and the ongoing war [27][27] - A ceasefire could theoretically increase Russian oil production by 1.0-1.5 mbd, but fiscal constraints and taxation policies make this unlikely [28][28] Additional Important Insights - The report highlights the adaptability of Russian oil operations despite sanctions and damage to refineries, with a focus on maintaining production within the OPEC+ framework [26][26] - The price of Urals crude has dropped below the $60/bbl price cap, indicating a significant discount and prompting sellers to adjust pricing strategies [17][17] This comprehensive analysis provides insights into the current state and future outlook of the oil market, emphasizing the interplay between geopolitical factors, production dynamics, and pricing trends.
Oil Markets Weekly_ The Trump doctrine_ Russia. Thu Feb 13 2025