What's takeaway 1 on Global Commodities?

Energy markets are pricing in remarkable calm despite an ongoing supply shock, a divergence J.P. Morgan flags as fragile.

What's takeaway 2 on Global Commodities?

J.P. Morgan's scenario analysis suggests the calm could flip to anxiety, with implications for commodity-linked currencies.

What are the market implications for Global Commodities?

Watch for spillover into NOK, CAD, and AUD if energy prices surge on supply disruption. A break above $90/bbl in Brent could accelerate risk-off flows, weighing on EM currencies and boosting the USD. Positioning data should be monitored for excessive net-long commodity currency bets.

What are the risks to this view on Global Commodities?

If supply disruptions fail to materialize or if demand weakens significantly (e.g., global recession), the current sanguine pricing could persist, invalidating the call for a sharp repricing. Additionally, a diplomatic resolution to the conflict would reduce the supply shock premium, reversing the bullish commodity currency view.

Global Commodities: Is that it?

What the desk is arguing

J.P. Morgan Global Commodities Research argues that energy markets are displaying an unusual calm despite an ongoing supply shock, as highlighted in their podcast "Global Commodities: Is that it?" recorded June 5, 2026. The desk frames this as a potential calm before the storm, with their scenario analysis drawing out less comfortable alternatives as the conflict drags on.

The supporting evidence centers on the divergence between actual supply disruptions and the market's muted price reaction. While the note does not specify a number, the implication is that the current 'sanguine' pricing could quickly shift if market confidence erodes, similar to past episodes of geopolitical stress.

The counterfactual the desk implicitly rejects is that current pricing fully reflects the supply shock and that resilience will persist. Instead, they see a binary risk: either the market remains calm, or a more apprehensive 'What if this isn't?' narrative takes hold, driving sharp repricing.

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.

If anything stands out in the energy markets today is that prices have become remarkably calm despite the ongoing supply shock. Both oil and global gas prices have dropped off their May highs, while volatility has fallen sharply. Although headlines and expectations of a deal continue to dominate, fundamentals have played a role as well.

Our base case remains that some type of a memorandum of understanding will be signed in June with a gradual reopening of the Strait of Hormuz. Under that assumption, Brent should average around $100 through the balance of the year, sleeping below triple digits on a monthly average basis only in December. The alternative remains far less comfortable.

If the Strait stays closed beyond June, our framework implies that each additional month of disruption would lift average prices of oil by roughly $5 for the third quarter of this year and by $15 for the fourth quarter of this year, driven primarily by accelerating inventory depletion. Yet, despite the absence of an agreement, the continued closure of the Strait, and ongoing inventory dross, markets appear increasingly comfortable with the status quo. So when does the market psychology shift from a sanguine is that it to a more apprehensive what if this isn't?

Whether is the market correctly signaling that the worst of the shock has already been absorbed and that oil and gas prices can actually oscillate around current levels for the rest of the year, despite the largest supply disruption in the modern history? To help me with this question, I'm joined today by Otar de Boadza, who heads our European natural gas research. Otar, thank you so much for joining me today.

So let's start with the rebalancing in gas. So European gas prices, 48 euros per megawatt hour. At the start of the conflict, they were at 30, so they're below what they were in May, but still elevated.

Similarly, Asian gas prices are trading at about $18 per MBTU, up from 12, but still below where they were at the peak of the level, the peak of the May levels. Is there some rebalancing that is happening in the gas market? Why the prices are lower than they were a month ago?

Yes. Hi, Natasha. And thank you for having me and thanks for the listeners for joining.

So in the LNG supply side of the equation, we have about 300 million cubic meters per day of supply disruption from unavailable supplies from Qatar and UAE. But about 60% of this lost supply is replaced by alternative, by supplies from alternative sources. Primarily, this is the United States, accounting about 40% of this remaining of North America and also selected places in Africa, Russia and Asia Pacific.

However, what's important is that a vast majority of the supply increase is what we already expected and what the market has already expected, even when the war started or before this conflict started. This primarily is coming from existing projects which are ramping up their capacities or which are running at full capacities this year as compared to ramping up their capacities last year. And for example, the United States is a great example, like United States supply increased about 100 MCM per day in March, about 80 MCM per day in April and about 60 MCM per day in May.

So this increasing increased supply is diminishing as we enter into later half of the year. So, Othar, what about the demand side? Do you see any rebalancing that is taking on the demand side or is everything carried by the supply?

So the remaining 40% is largely absorbed by demand. It's primarily absorbed by declining Asian demand, something about 100 MCM per day, another 50 MCM or so Europe, and then the net is actually increased in Egyptian imports. Similarly to supply, these levers or these absorbing mechanisms is also kind of approaching their limits.

For example, China, Chinese LNG imports actually increased in May, marginally year over year, just 4 MCM per day, but still it's kind of bottomed out in late April, May. Similarly declines in remaining of Asia, Japan, Korea, India, etc. is also declining. So the increase in demand, we see incremental increase in demand in May compared to April.

And this is still Q2, still shoulder season, and we expect this competition to accelerate as the increase, as the supply increase is diminishing, demand is picking up, and we entering into accelerated storage injection season in Europe and potentially higher cooling demand season in Asia, which we expect will put upward pressure on the prices both in Europe and Asia. And so your view is that the current prices are too low, yes, in both Europe and Asia? Yes, we expect prices to increase because even though 50 euro compared to pre-war levels is significantly higher, is about 65-70% higher, European prices is still at discount when we compare it to Asian destinations, and which obviously impacts the European storage trajectory.

And we think that the way to solve this is through higher prices, which will disincentivize Asian spot demand and also incentivize higher gas to coal switching in Europe and eventually freeing up more gas molecules for storage on the continent. Thank you. So, Ottar, similarly to your markets, the oil market is also signaling that there is an ongoing rebalancing in our markets as well.

So very similar to yours, yes, we're dealing with physical markets, there are several channels through which this disruption is proven to be more manageable than the headlines imply. So supply losses are smaller than believed, inventories larger than reported, or demand losses could be deeper than recognized. So what is interesting is that taking a look, closer look at the Strait of Hormuz, despite this blockade on both sides of the Strait, surprising volumes of crude and petroleum products actually appear to be transiting the Strait.

So the visible traffic is still running at about 15% of pre-war levels, but it does appear that a subset of vessels may be still getting through. And so our analysis suggests that those clandestine flows are closer to about slightly over 2 million barrels per day. It's visible then the last two weeks of May have seen a substantial increase in the volumes traversing through the Strait.

And it does appear also that a lot of that is done with their transporters off, with the signals poofed off, and they're hopping across the Strait without visibly registering in the waterway. But the numbers, you know, the numbers are, you know, relatively big. So two, you know, maybe 3 million barrels per day of oil that is actually passing now to the Strait.

And the volumes we're looking on the supply side. So Tara, you mentioned that 60% of the world's gas is being replaced. In the case of oil, actually, that's not, that's not the case.

So only two countries increased production beyond our expectations. Brazil, interestingly, Venezuela is there as well. So it's a big increase in the U.S. production, but that's in line with our expectations.

But in general, when we look at the numbers, we estimate that incremental non-Gulf supply at about 2.1 million barrels per day in March and 2.4 million barrels per day in April, which is a lot, but nowhere near enough to replace the roughly, you know, 16 million barrels per day of lost Middle East oil supply. Inventories are also being released very rapidly. So far, we are tracking about 450 million barrels of inventories being released.

The drain is likely to continue, the deeper we go, the deeper we go into the summer, even with the Strait of Hormuz open, or if the Strait of Hormuz and when is it open, it will take time to normalize. So hence, we do believe that more inventories will be drawn throughout the summer. Given the pace of growth, we still expect inventories to reach stress level somewhere in late June, with operational floor levels approaching by September.

And the final factor, Otar, it's very similar what we're observing, what you're observing in the gas market is that it does appear that the world has become far more adept at adjusting to oil shock than historical experience would suggest. We're taking a very close look at COVID, the 2022 price spike, and so it does appear that those two events may have taught governments, businesses, and consumers how to sustain economic activity while using less energy. So for example, remote work reduced commuting, digital tools replaced a portion of the business travel, supply chains became more flexible, and so on.

So this week, we received the first demand indicator from March, and they're very consistent with this interpretation. Our expectation is actually that the demand will contract in March, but slightly, about 0.6 million barrels per day, mostly because the tankers that departed the Strait of Hormuz on February 28th were still arriving around the world in March. So because of that, we thought there will be some impact, especially in Southeast Asia, but not that big.

The data right now is pointing that actually demand, oil demand contracted by almost 2 million barrels per day versus a year ago levels in March. And just to put this for scale, the peak of global financial crisis in January 2009, global demand contracted by about 2.5 million barrels per day. So now we're talking about two.

So as expected, the bulk of the contraction was concentrated in the petrochemical feedstock in the regions like Middle East and Southeast Asia, Africa to some extent, but we'll have to say that the scale of the destruction was really surprising to us. And so this unexpectedly weak March demand has reshaped our outlook for the subsequent months, prompting a downward revision to our April and May consumption estimates. We now project demand contracting by 3 million barrels per day in April and 4.2 million barrels per day year over year in May.

So Otar, I think listening to your analysis of the gas market, looking in the numbers in the oil market, I think taking together these adjustments help explain why prices for gas and oil are lower than what they were in May. At the same time, I think it's very fair to say that they're not signaling that the disruption observed by the market right now, it's small. They're signaling that the markets have found ways, albeit costly ways, to absorb this disruption, at least for now.

Otar, thank you so much for joining me and to our listeners, thank you for tuning into the commodities edition of J.P. Morgan'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 J.P. Morgan research reports related to its content for more information, including important disclosures. 2026 J.P.

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Global Commodities: Is that it?

What the desk is arguing

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