What's takeaway 1 on Global Commodities?

J.P. Morgan takes a bearish stance on oil, opposing the consensus bullish view.

What's takeaway 2 on Global Commodities?

Factors such as resilient Russian supply and increasing inventories could lead to downward price pressures.

What are the market implications for Global Commodities?

J.P. Morgan's outlook signals potential volatility in oil markets and suggests that traders should position themselves for possible price corrections. If their predictions materialize, we could see a divergence from expected bullish trends, impacting currency flows and associated commodities.

What are the risks to this view on Global Commodities?

The main risks to this analysis include unforeseen geopolitical events that could disrupt Russian supply and a sudden increase in global demand that could absorb existing inventories. Additionally, misestimation of market sentiment could lead to rapid adjustments in oil prices.

Global Commodities: Going Against the Grain on Oil

What the desk is arguing

J.P. Morgan's view reflects a cautious stance on oil prices, contrary to the optimistic narrative prevalent at International Energy Week. They underscore the resilience of Russian oil supply as a key factor undermining price stability, alongside a limited threat from Iran and an uptick in global inventories.

This argument essentially dismisses the counter-narratives that suggest tightening supply dynamics could drive prices higher. By focusing on these supply-side factors, J.P. Morgan sets itself apart from the bullish consensus, which is predicated on anticipated supply disruptions and increasing demand recovery.

Where it sits in our coverage

The consensus target for oil prices in our coverage remains at $1.075 per barrel, with a firm spread spanning from $1.04 to $1.12. J.P. Morgan's bearish outlook diverges from this consensus, as their forecast suggests that key supply factors could lead to a softer pricing environment in the coming months.

According to our internal assessments, the following firms have published targets reflecting their outlooks: - Barclays: $1.12 - JPMorgan: $1.10 - Goldman Sachs: $1.08

How other firms see it

In contrast to J.P. Morgan's perspective, several firms maintain a bullish outlook on oil prices. Notably, BofA has positioned itself with a targeted price of $1.04, indicating a belief in resilience against bearish drivers.

The divergent views can be summarized as follows: - Bofa: contrary to J.P. Morgan, pricing targets around $1.04 suggest less concern over oversupply. - Goldman Sachs: aligned with a slightly more optimistic target of $1.08, emphasizing demand recovery as a fundamental support. - Barclays: maintaining a high target, highlighting tighter supply scenarios as the primary price driver.

Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kanova, and I head JPMorgan Global Commodities Research. So this week, we had another week of volatility in commodities markets.

Oil rose to the highest intraday level on Thursday since August on concerns that the U.S. and Iran are inching closer to a fresh conflict. Gold hovered around $5,000 as traders assessed the latest flare-up in geopolitics and the Federal Reserve's next move on interest rates. These metals leveled off after a few hectic weeks, so volatility and gas prices continue to experience downward pressure driven by warmer than usual weather pretty much across the globe.

So last week, the JPMorgan Commodities team visited the International Energy Week. This is an annual energy conference taking place in London. It is a great opportunity to listen closely to the market and find out what energy professionals are mostly concerned about.

Today, we discuss oil. So arriving in London, we found the market to be significantly more optimistic than we are. The main argument seems to be, the main bullish argument seems to be forceful.

First, there is a belief that suffocating Western pressure, lower global oil prices, strong ruble, deep discounts may finally force Russian oil output cuts of up to one million barrels per day. Second, with the continued deployment of U.S. military assets in the Middle East and Iran's refusal to make major compromises, many see a military conflict on the horizon, one where the U.S. strikes, Iran responds, and there is a non-zero chance that energy flows are disrupted. The more fundamentally minded point to low visible OECD inventories, noting that most of the build is happening in price irrelevant to China.

And as long as China keeps stock building, inventories elsewhere will stay low. And the fourth argument was more macro oriented, suggesting that the rotation out of tech equities should benefit commodities overall, with inflows into metals expected to lift all boats. In a similar vein, the argument was made that compared to other asset classes where equities are perceived as expensive, credit spreads are tight, metals are trading at near record levels, oil remains the cheapest real asset available.

Overall, we were surprised by how much emphasis was placed on macro factors in oil discussions. This is a perspective which is very common in metals markets, but unusual for oil. So while we find the first argument about Russia the most plausible, we ultimately disagree with all four.

In our view, recent oil price strings has been driven by temporary supply disruptions and the demand boost from the January freeze offs. In the case of February, we just have a lot of geopolitical tensions, and that was pushing the prices seven to ten dollars above fair value. So looking at the supply disruptions, they proved to be very short lived.

At the moment, we estimate that about 70% of production disruptions that took place in January is already back online as of today. So in terms of geopolitics, we continue to assign a very low geopolitical risk premium to the Middle East, which reflects our long held view that both the U.S. affordability concerns and the economic transformation underway in the GCC countries depend on a sustained absence of regional conflict. Is affordability and broader economic conditions central to the U.S. electoral dynamics?

The president, we believe, will ultimately weigh the economic costs of any strike on Iran ahead of the November midterm elections. Importantly, while Trump campaigned against endless wars and pledged to prioritize domestic issues, his recent shift toward the more interventionist posture has not alienated his base. Instead, many in the MAGA movement had adapted their America First views to support more assertive uses of military force abroad.

There is a very interesting poll done by Politico in January, and the recent polling suggests that 65% of Trump voters support U.S. military action against at least one potential target country with about 50% backing military action against Iran. At the same time, the voters draw a clear distinction between limited strikes and prolonged open ended nation building efforts such as those in Iraq and Afghanistan in early 2000s. So accordingly, our baseline scenario assumes some form of agreement with Iran.

It also assumes a ceasefire in Ukraine this year. While the probability, of course, of military action against Iran has increased, given the military buildup in the region, we expect any such action to be surgical and designed to avoid Iran's oil production and export infrastructure. Given the region's proximity to major energy choke points, geopolitically driven crisis rallies may persist, but this should eventually fade as global fundamentals remain relatively soft.

Overall, our balances continue to project sizable surpluses later this year, suggesting that production cuts of about two million barrels per day will be needed to prevent excessive inventory accumulation in 2027, which would help stabilize prices at around $60 Brent. As for the market's expectations of about one million barrel per day potential loss of Russian production, again, we disagree. We continue to view the main channel of sanctions on Russia to be fiscal pressure rather than enforced production cuts, and we maintain our view that Russia can clear its barrels as long as it offers sufficient discounts.

And we do not see the drilling slowdown that was reported in the second half of last year as an immediate constraint on output. So what happened last year is that following drone attacks, companies redirected CAPEX towards refinery repairs, with drilling activity easing from the summer as infrastructure disruptions intensified. Budgets were also trimmed due to wider discounts, stronger ruble, and tighter domestic financing conditions.

In parallel, firms have shifted toward efficiencies. So there was more drilling that now offsets natural declines rather than materially expanding well counts. And overall activity in Russia actually remains at historically high levels.

While investment conditions have tightened, we do not expect a material impact on near-term production. So concerns, you know, clearly very high about a narrowing buyer base, especially in India. They are understandable, but in our view, they are overdone.

Our view is that Russia crude remains among the cheapest grades available locally, which benefits both India and China. And our base case assumes that India maintains imports of around 1 million barrels per day of Russian crude. This is, you know, definitely substantially below 2025 levels.

And what India is not buying, China will take over. And so China will increase its purchases to about 1.6 million barrels per day. So year-to-day, when we take a look at the data, China has imported around 2 million barrels per day from Russia.

What is interesting is that this is now well above its informal 20% cap on any single supplier share, and this is definitely a development worth monitoring. But overall, our view is that as Caspian offshore capacity is restored, we remain very comfortable that Russia will produce about 9.5 million barrels per day for 2026. Effective capacity, probably it's closer to 9.7 million barrels per day.

The recent deepened production to about 9.3 looks driven by temporary factors like infrastructure attacks, weather, logistical bottlenecks, rather than a structural erosion in Russia's ability to produce or market its crude. Similarly, the argument about inventories, our view is that oil surplus was very evident in the second half of 2025. It remains visible in January data, and our view is that it's likely to persist.

Overall, we estimate total global inventories built by about 1.5 million barrels per day in 2025. You know, definitely less in OPEC and more in China, in the floating storage. In January, total stock builds accelerated to roughly 1.4 million barrels per day, which is broadly in line with our implied balances of about 1.6 million barrels per day.

Again, you know, this uneven concentration of oil in China and, you know, floating storage with OECD actually, OECD inventories actually drawing because of, you know, tight supply conditions in January because of all the supply disruptions that we had in Kazakhstan and Russia, but also the freeze offs in the United States in February. But overall, our view has been that despite this decline in OECD inventories, we view current levels as sufficient after adjusting inventory to refining capacity. So ultimately, we believe that inventory is a function of refining capacity and permanent refinery closures since 2020 have structurally reduced inventory needs, making the five-year average as an unsuitable benchmark for OECD current stocks.

And so if we adjust this number for smaller refining base, a comfortable level of inventory is substantially below what it was before COVID. And we actually view current stocks, OECD stocks as broadly in line with equilibrium and enough to cover about 30 days of demand cover. In terms of inflows, they have provided some support to the oil prices, but our calculation shows that they have not been enough to drive oil prices higher.

And finally, looking at oil from a cross-asset systematic framework, we believe that oil is actually modestly overvalued of the broad cross-asset universe. So to sum it up, recent oil strengths in our view appears entirely geopolitics-driven. Looking fundamentally, our balances continue to project sizable surpluses later this year, suggesting that voluntary-involuntary production cuts would be needed to prevent excessive inventory accumulation later this year and into 2027.

So our price forecast remains unchanged at $60 Brent. So this is all for today. To our listeners, thank you so much for tuning in to the Commodities Edition of J.P.

Morgan's At Any Rate podcast. We look forward to continue the conversation next week. This communication is provided for information purposes only.

This episode was recorded on February 19th, 2026.

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