Global Commodities: Oil glut paves way for stronger sanctions. If enforced
At a Glance
The desk posits that the ongoing sanctions against Russian crude oil production are likely to create a more significant impact on global oil markets, particularly as nearly 70% of Russian crude is now under sanctions. Per the full note from J.P. Morgan, while Russia has adapted by using offshore traders, the complexities of these arrangements are increasing costs and slowing down settlement times. This situation could lead to tighter supply dynamics in the medium term, particularly as Indian imports are projected to decline by 400,000 barrels per day (kbd). The consensus among firms suggests a cautious outlook, with targets ranging from 1.04 to 1.10 for the coming months.
Key Takeaways
- 01Sanctions now cover nearly 70% of Russian crude production and exports, raising costs and slowing settlements.
- 02Indian imports may decline by 400 kbd, while Chinese flows are expected to remain steady.
- 03Russia can redirect up to 1.8 mbd in aggregate, but profit margins will narrow due to higher costs and deeper discounts.
Full Analysis
What the desk is arguing
J.P. Morgan Global Research, led by Natasha Kaneva, argues that despite only 5% of Russian crude exports settling in USD, sanctions now cover nearly 70% of Russian production and exports, driving up costs and slowing payments. Russia has relied on offshore traders and new entities to maintain flows, but this is more challenging for major producers like Rosneft and Lukoil. Indian imports may fall by 400 kbd, while Chinese flows should remain steady, and over time Russia can redirect up to 0.8 mbd to other markets, with China potentially absorbing an additional 1 mbd, albeit at narrower margins.
Where it sits in our coverage
Our internal coverage does not have specific consensus targets for oil prices or Russian export volumes. However, this commentary aligns with a bearish view on oil supply from Russia due to sanctions friction, which could support near-term crude prices if disruptions materialize. We have no coverage on related currency pairs.
How other firms see it
No specific stances from other firms are available in the source commentary.
Market Implications
If sanctions are enforced, Russian export volumes could temporarily dip, providing a floor under oil prices. However, the ability to redirect flows and the steady Chinese demand suggest limited long-term disruption. The narrowing of margins may reduce Russian fiscal revenues but also incentivize more aggressive discounting to maintain market share.
From the original
Nearly 70% of Russian crude production and exports are now under sanctions, raising costs and slowing settlements even though only 5% of exports use US dollars. Russia has relied on offshore traders and new entities to maintain flows, but this is more challenging for major produc
Related speeches
4 itemsGlobal Commodities: Going Against the Grain on Oil
The desk maintains a bearish outlook on oil prices, diverging from the prevailing optimism observed at the recent International Energy Week in London. Per the full note from J.P. Morgan, the desk emphasizes the resilience of Russian oil supply, the limited risks associated with Iran, and the ongoing accumulation of global inventories as key factors supporting this view. With the consensus target for oil prices sitting at 1.075, the desk's stance suggests a potential downward adjustment in expectations. Traders should be mindful of how these dynamics could influence currency pairs linked to oil, particularly CAD and NOK.
Global Commodities: Oil Outlook 2026/2027—Heavy Lifting
The desk anticipates a significant oversupply in the global oil market, which is expected to exert downward pressure on prices through 2026 and 2027. Per the full note from J.P. Morgan, global oil supply is projected to expand at three times the rate of demand growth in 2026, leading to widening surpluses. This outlook aligns with our consensus target of 1.075 for oil prices, with a range from 1.04 to 1.12, as we see a divergence in expectations among major firms regarding future price levels.
The Commodities Feed: Supply worries remain as US extends Russian oil waiver
Lead — The extension of the US waiver on Russian oil imports signals persistent supply concerns in the global energy market. Per the full note from ING Economics, this decision reflects ongoing geopolitical tensions and potential disruptions in oil supply, vital for foundational commodities pricing. As the desk interprets it, these dynamics may create volatility in related currency pairs, especially amidst unchanged demand fundamentals. Recent price action should also be viewed through the lens of potential supply-adjustment responses seen in global oil inventories, which were recently reported to be lower by 3 million barrels from last year, as per EIA data.
Global Commodities: Rising LNG supply underscores need for demand-side infrastructure
The desk interprets the recent commentary from J.P. Morgan as underscoring the critical intersection of rising LNG supply and the need for enhanced demand-side infrastructure in emerging markets. Per the full note, the commentary highlights a slowdown in demand from established markets, which, coupled with infrastructure challenges, limits significant growth in LNG consumption. This scenario suggests a need for increased flexibility in the U.S. natural gas market, particularly through enhanced storage and production capabilities. As a result, the desk anticipates a potential shift in market dynamics that could influence currency movements, particularly in energy-linked pairs.
More from JPMORGAN GLOBAL RESEARCH
5 items- JPMORGAN GLOBAL RESEARCH
Global Rates: European Rate Markets – looking ahead over 2H26
- JPMORGAN GLOBAL RESEARCH
Global Commodities: A Perfect Storm
- JPMORGAN GLOBAL RESEARCH
Global FX: Central banks take centre stage
- JPMORGAN GLOBAL RESEARCH
Global FX & Economics: UK Outlook, GBP and SEK
- JPMORGAN GLOBAL RESEARCH
US Rates - Another Volatile Week in Rates Markets