JP Morgan Increases Forecast of 2010 Crude Oil Prices

Posted by Steven Zweig on September 30, 2009 at 10:44 am

JP Morgan says prices will stay relatively flat. (image: guardian.co.uk)

On Monday JP Morgan increased its 2010 crude oil price forecast fractionally, from $67.75 to $68.75. Though an increase, the modest change reflects the large surplus of production (supply) over consumption (demand)—OPEC alone has 5 million barrels per day of surplus capacity. Even with refineries reducing output of distillates, such as heating oil and gasoline, there is substantial excess inventory of petroleum products that would need to be absorbed by oil markets before any future demand increase could exert substantial upward pressure on prices.

JP Morgan’s essentially flat 2010 forecast is in line with comments this week by the head of Saudi Arabia’s state oil company, Aramco, who saw sluggish Western consumption—depressed by the recession—outweighing increased Chinese demand and holding prices down. JP Morgan’s forecast for the fourth quarter of 2009 is marginally more bullish, predicting a $5 per barrel increase during the northern hemisphere’s heating season.

A JP Morgan analyst saw only one significant risk in the near-term that would be capable of disrupting supply and increasing price: confrontation with Iran. In this, the analyst was not concerned about potential Iranian reduction in crude output—the surplus capacity possessed by the rest of OPEC would easily absorb any Iranian slowdown—but rather with the potential threat to ships transiting the Strait of Hormuz. With 40 percent of world oil passing through the Strait of Hormuz, Iranian military action, a blockade, or even simple harassment of shipping could reduce oil imports substantially.

Forty percent of the world's oil passes through the Strait of Hormuz. (image: wikimedia.org)

This article was posted on Wednesday, September 30, 2009 at 10:44 am and is filed under Blog, crude oil prices

One Response to “JP Morgan Increases Forecast of 2010 Crude Oil Prices”

1. January 7, 2010 at 5:23 pm
   2010 Oil Demand Predictions | HeatingOil.com says: says:
   

   [...] over 2009 levels. As explanation, OPEC noted the extremity of the global oil glut. JP Morgan also cited the record supply glut in its demand forecast, which predicted a 1.1 mb/d [...]