BAKU, Azerbaijan, Aug.2. Shortages of natural gas in Europe and the resulting spike in global LNG prices should trigger significant switching to other sources of energy, Trend reports with reference to the US JP Morgan Bank.
“We increase our estimates for oil demand from gas to oil switching over the winter, which is offset by normalizing Libyan supply, resulting in a largely balanced global oil market in 4Q22, followed by a 1 mbd stock build in 1Q23. We keep our price forecast unchanged and see oil in the low-$100s in 2H22 and high-$90s in 2023,” reads the latest report from the Bank.
JP Morgan notes that a recession is not yet priced in oil markets.
“Historical evidence suggests that demand is well supported as long as global growth remains positive, but oil price tends to fall in all recessions by 30 to 40 percent. Oil prices are down 20 percent from their March peak, but we believe much of this is due to a re-pricing of the likelihood of worst case scenarios for Russian export volumes. Under a 1.5 percent global growth scenario, slower oil demand growth would cause stocks to normalize back to 2015-19 average levels by the end of 2023. That pace of stock builds could not only eliminate the price support provided by low inventories, but also cause the Brent forward curve to shift from its current steep backwardation into contango,” the report says.
The report reveals that near-term relief rally in Metals to eventually fade as winter brings intensifying demand woes and another push lower in prices.
“The recent firming in base metals prices is likely to extend near-term on improving China demand, but will likely prove temporary as ex-China demand risks continue to escalate. We see prices ultimately moving lower to bottom out in 4Q22 and 1Q23 at ~$6,500/mt for copper and ~$2,250/mt for aluminum, given weaker demand and risks of oversupply.
Record heat evaporates Freeport storage cushion. Asymmetric
upside risk is very much a part of the US
natural gas narrative for the remainder of summer until demand
destruction will manifest. We maintain our current outlook for US
natural gas price: $7.75/MMBtu average for 3Q22 versus the quarter
averaging $7.50 so far, with relative price weakness likely to
manifest for summer 2023.”
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