Global Commodities: A Perfect Storm

Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kanova, and I head J.P. Morgan Global Commodities Research.

Since March 1st, the Strait of Hormuz has been treated by much of the world as effectively closed. Yet, over the last two weeks, particularly since Memorial Day, a growing volume of oil appears to be finding its way through. We estimate June oil flows through Hormuz are running at about 5.1 million barrels per day, up from 2.9 million barrels per day in May, 3.3 million barrels per day in April, and 2.2 in March.

The rebound is meaningful, almost double the March volumes, but it still leaves flows at only about 25% of pre-war levels. While increased tanker flows may help ease the oil side of the ledger, gas markets have had less luck getting LNG through. Outside of the Middle East, the perfect storm of low storage injections rates potentially higher El Nino cooling demand and slowing LNG supply point to a bullish case for TTF European gas prices over the summer.

To help us untangle all of that, I'm joined today by Otar Deboadze, who leads our European natural gas research. Otar, thank you for being here. So let's focus first on the oil side of the markets.

With more oil flowing through Hormuz, actually, at the moment when we observe the oil markets, they are balanced. But this balance came at a cost through a combination of demand losses and large scale inventory releases. So just taking a look at the demand side, it has weakened substantially.

So similarly to the flows through the Strait of Hormuz, at the moment, we believe that demand losses are actually double the level where they were at the peak of the global financial crisis in January 2009. So we have a very traditional price driven demand destruction in places like Southeast Asia and Africa. Middle East definitely has been struggling because it's an active zone of the conflict.

But at the same time, in China, what we have been observing, it's an actually demand substitution where consumers have substituted away from oil substantially more readily than expected. At the same time, the governments and commercial operators have been drawing down heavily on both crude and refined product inventories. And together, these adjustments have reduced the burden on prices to do the balancing.

Still, our numbers are showing that inventories have fallen to a level where our model suggests that the damage occurred about three weeks ago. And because of that, we continue to project prices at around $100 for the remainder of the year. Otar, now moving to your market.

So it does appear that a lot of things are actually moving in favor of substantially higher gas prices going into the third quarter of the year. If you can please walk us through what exactly are you watching for? Hi, Natasha, and thank you for having me.

Maybe I'll start quickly about commenting the comparative statistics on the LNG flows from the Middle East. So far, at the beginning of conflict, actually, we counted only 17 vessels in LNG vessels inside the Strait. So far, we count about nine crossings or exits from Strait to outside into the Indian Ocean.

So compared to oil numbers, the additional volumes that come from these unobserved exits are very, very small. So it's about like nine exits, it's about 0.2 exits per day or 0.2 vessels per day. This is compared to about three, four crossings on average every day before the conflict.

So we are talking about like 5% of pre-conflict volumes still exiting, which is very, very small and almost negligible. When it comes to the TTF market, so we are watching what we call the perfect storm in our recent publication. So first of all, storages.

Storages are at record low for this time of the year in Northwest Europe. We are watching about 33% full level, which is comparable to about 60% average for this time of the year. At the same time, TTF prices moderated relatively today from about 50 euros yesterday to 47, but still remains at a discount against Asian prices and at a premium against European, European winter prices.

So it doesn't provide commercial incentives to inject into storages. At the same time, the most important balancing mechanism on the LNG market following the conflict, which has been the rising supply from Austria and most of all from the United States and North America is also approaching their limits. The marginal increase year, month after month will be lower and lower.

And at the same time, we are entering into the peak cooling demand season in Asia, potentially exaggerated by El Nino risks and cool peak injection season in Europe, which we think creates this perfect storm for bullish narrative for TTF in Q3. Otar, so with storages at record lows at this time of the year, longer summer TTF prices remain at the premium, as you pointed out yesterday, the winter prices discounted to the Asian prices. So do you believe that actually this invites a higher risk of policy interventions?

Because you know, we're in the middle of June, so the storages have to fill up by the official start of winter, November 1st, you know, and then it doesn't leave you that much time to do that. Yes, considering with about 33% at the moment. So where do you pack, you know, this probability of policy intervention?

Yes, of course. Every day we approach winter and we approach this operational limits of how much can actually be injected into storages. We cannot wait too long and wait for September, October to inject.

It has to be a smooth curve. So we had similar situation beginning of last year when the storages were low and curve was backwarded. So the authorities effectively had phase two choices, either to relax the storage regulations or to provide some sort of government support, whether it's in form of subsidies, preferential loans or various structures that can be structured.

So government authorities last year went ahead with relaxing the storage target. So from 90%, we went to effectively to 80%. Following that, Germany actually relaxed its domestic target to 70%.

So today, this option is actually no longer a viable alternative to address this situation. So the longer we stay in this backward dated curve with the straight effectively closed and this mounting pressure for winter storage is increasing, we think that it increases some sort of government risks of some sort of government intervention, especially in Germany, where there is, which has the largest storage capacity, but has a low storage level at the moment. Thank you, Ottar.

So in conclusion, both the oil and gas markets are operating with very low inventory levels and will likely require prices above current spot levels to meaningfully replenish stocks. In the US, for example, oil inventories are at their lowest level since 2004, effectively raising the surplus built during the Shell revolution. Bigger activity in the Strait of Hormuz has picked up in oil, while the gas market remains far more limited.

Overall, both the oil and gas teams believe the future curves are underpricing the risks. Ottar, thank you so much for joining me. To our listeners, thank you for tuning into the Commodities Edition of JPMorgan's At Any Rate podcast.

We look forward to continuing the conversation next week. This communication is provided for information purposes only. Please refer to JPMorgan Research Reports related to its content for more information, including important disclosures. 2026, JPMorgan Chase & Company, all rights reserved.

This episode was recorded on June 12th, 2026.