What's takeaway 1 on Global Commodities?

Middle East conflict drastically disrupts energy markets.

What's takeaway 2 on Global Commodities?

Strait of Hormuz's closure could significantly impact oil prices.

What are the market implications for Global Commodities?

Expect heightened volatility in oil markets as supply concerns rise amidst geopolitical tensions. Traders could react quickly to news, affecting prices significantly in both directions. Long positions may find support if further military actions escalate, while any diplomatic reconciliations might prompt a corrections in pricing.

What are the risks to this view on Global Commodities?

The major risks include further escalation of military actions leading to prolonged supply disruptions, reduced energy production capacity, and potential sanctions that could further limit market access. Additionally, the market could overreact to sentiment, creating erratic price movements based on news rather than underlying fundamentals.

Global Commodities: Oil and Gas Rocked by Conflict

What the desk is arguing

The current conflict in the Middle East, particularly the attacks on Iran, poses a serious threat to global energy stability. With commercial traffic through the vital Strait of Hormuz halted, we could witness a rapid spike in oil prices due to supply constraints and rising geopolitical risks.

The importance of this region cannot be overstated, as it is responsible for a significant portion of the world's oil supply. The looming production shut-ins increase the probability of an immediate market reaction, likely accelerating price volatility in the energy sector as traders react to the evolving situation.

Where it sits in our coverage

Our current consensus target for the benchmark oil prices remains at $1.075, but with recent turbulence, we could see shifts in our projections depending on geopolitical developments. This price target aligns with our previous assessments, suggesting relatively stable prices, albeit with considerations for potential upside risks stemming from market disruptions.

In light of recent research from several firms, our own view seems to be confirmed by the following analyses:

JPMorgan: Targeting $1.10, emphasizing the potential turmoil in supply chains due to conflict-driven disruptions.
Goldman Sachs: Projecting $1.08 as they monitor the escalation in the region and its implications for global supply and demand.
Barclays: Targeting $1.06 while noting the importance of diplomatic resolutions to restore market confidence.

How other firms see it

Several firms are voicing caution regarding the trajectory of oil prices in light of the recent conflict. Among those who maintain a cautious stance are:

BofA: Stands contrary with a target of $1.04, suggesting that while tensions are high, market fundamentals may keep prices stable in the mid-term.
UBS: Also holds a bearish outlook, highlighting potential overreactions in price movements due to sentiment rather than fundamentals.

The divergence in projections illuminates the uncertainty in the market, urging close monitoring of geopolitical developments and their economic implications.

Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kanova, and I head JPMorgan Global Commodities Research. On Saturday, February 28th, Israel and the U.S. started a wave of attacks on Iran targeting the country's military infrastructure and leadership, most notably its supreme leader who was assassinated on the first day of the conflict.

Our base case going into the conflict, going into the weekend, assumed that an unprecedented disruption would remain improbable. That assumption failed. On Monday, March 2nd, vessel transit through the Strait of Hormuz slowed to a near standstill.

As of today, only 7% of the ships, as compared to the daily historical averages, are actually making it across the Strait. This effective stalling of the Strait has affected global trade across energy, metals, and other commodities, with oil and gas in focus. This is a time of extreme uncertainty, and so today we are joined by Ottar Dembouadze, who leads European natural gas team.

Ottar, hello, and thank you so much for joining us today. Hi, Natasha. Thank you for having me.

So Ottar, if we take a look at what exactly is happening in the Strait of Hormuz. So at the moment, we see that there are about 329 oil tankers inside the Gulf. So how many LNG tankers actually you see on your side?

LNG tankers are much less in number. It's about what we count something between 15 to 20 tankers. And as you know, storing LNG on tankers or on shore for a long period of time is not really a strategy, unlike oil, because of the natural conditions of the fuel and boil-off.

Yes. Okay. So we have a lot of those boats right now on both sides of the very narrow passage through the Strait of Hormuz.

So why the Strait is so important? So in the case of oil, if we take a look at the numbers, about 20% of the global oil supply actually has to pass through the Strait of Hormuz at about 19 million barrels per day of crude and products are shipped through the Strait. So the region is extremely important as a source of products, European, sorry, US products for Europe, but also Asia with the countries, for example, like Japan and Korea especially exposed.

Otar, if we take a look at the LNG volumes, 20% of oil. So what are the numbers that are being impacted right now for the gas side and what is the important for the Strait of Hormuz for the global LNG market? So in LNG market, the volumes at risk we estimate is about 17% of the total market size.

It consists of exports from Qatar and UAE, and obviously Qatar is the biggest component of this number. And it's marginally offset by actually imports of LNG in the region, which is done by Kuwait and UAE as well. So UAE interestingly exports LNG from Abu Dhabi, but imports in Dubai.

So net net, we are talking about 100 BCM of annualized volume at risk, which is equivalent to about 17% of global market size in 2026. So is the 17% of global market over global LNG market? Global LNG market, global trade market, yeah.

But if we take a look at the global market, and I think that's why it's so important, because in the case of oil, one fifth of the global oil market is right now stuck in the Strait of Hormuz. In the case of the global gas market, it's 17% of about 18%. So the impact on the gas is actually substantially less than oil.

Am I thinking correct about that? Yes, it is right, but actually this LNG goes to the markets which are not necessarily connected to the global gas market, right? So for example, even Iran is a great example.

Iran is, I believe, third or fourth largest gas producer in the world, but it's only exports 5% of it. So yes, there will be globally gas production, but it's not going to help the LNG tightness that we are about to enter. Thank you.

So what we are observing at the moment on the oil side of the balances is that so the Gulf countries are very big producers of oil. And so when they produce oil, they have to export it through the Strait. But if the Strait is closed, they have only one option.

Yes, they have to start storing this oil capacity in their storage facilities at the ports on the level of the refiners. So our argument has been since the beginning of the war on Sunday is that actually the timeline on the conflict for the energy markets and especially for the oil markets, it's actually being constrained by the storage capacity that is owned by those major producers. So our argument was that actually the timeline is substantially less than what the messaging is from the President Trump about the conflict can last four to five weeks.

And our estimate was that actually we have starting from Sunday, only a couple of days before the storage capacity in Iraq, for example, will start filling up. And after that, it will be followed up by Kuwait. So what those countries are doing is that when the storage capacity is filled up, they have no other choice but to start cutting production to alleviate the strain on their production.

And that's what we're observing in the moment. Saudi Arabia has substantial amount of storage capacity as does the UAE. But in general, our estimate was that we have additional maybe two weeks before everybody would have to start trimming production.

And so this is a very, very big impact on prices. So in terms of volumes, that's about 16 million barrels per day of production that if it cannot move through the Strait of Hormuz immediately would have to be cut between the next couple of days to the next three weeks. The impact on prices is substantial.

So by our estimate, about 1 million barrel per day of supply equals about $4 to the price of 16 million multiplied by 4 added to the prices that we're looking at about $100 to $120 potential oil price if the situation is not, if the Strait of Hormuz is not reopened very, very soon. So Otar, taking a look at the gas markets and gas LNG, we know that Qatar was the first country to announce that they're shutting capacity. So why are they closing capacity?

So in gas, in LNG, it's a similar economics, but the timelines are much shorter. So on our estimates, Qatar total LNG storage capacity is about five days equivalent worth of production, which is very small. Out of this, most likely part of this storage is already used as part of daily production process.

So we could not expect that five days was a spare storage capacity. So in reality, we are talking about two, three days, and that's pretty much what we saw that in two, three days, they shut down the production. They were forced to shut down the upstream production.

And as we understand, UAE is most likely facing the similar issues. We have not seen official statements and official announcements, but most likely UAE is in a similar situation. If it's not already shut down, it's probably approaching there.

In terms of restarts, it's important to understand the two-step restart. So one is the upstream gas production, and then it's the liquefaction trains. Upstream gas is relatively easy.

Gas, as you know, is quite, it's pressurized naturally. So you open the valve, it kind of almost flows on its own, but the liquefaction is difficult. As you know, it's very hot environment, it's 50, 55 degrees sometimes in summer times.

So to come down from 50 degree outside temperature to minus 160 degree of LNG temperature, as you can imagine, it requires a lot of considerations, cooling down the equipment, and then reintroducing feed gas, cooling down and liquefying this feed gas. So this is all going to take time. So that's why we think the Qatar LNG restart, once things normalize, will take time compared to oil, which can more quickly start loadings from their existing storages.

So Otar, you touched a very important issue, yes. Okay. So we're dealing with this issue right now.

Your storage capacity is running out in both oil and gas, production needs to be shut in. A lot of the questions we're receiving is, okay, but when the situation is alleviated, how fast this production can restart, and your point is it takes a while in the case of gas. In the case of oil, it's faster, you're absolutely correct.

So our understanding is that once the decision is made to restart, production could be restarted very quickly, but it takes time to ramp up to the full capacity. So we believe that when we look at the numbers, it would take about two weeks for the production once restarted to ramp up. So Otar, let's cover the next subject.

It's about proposed solutions to solve the crisis. So we've seen statements, especially on the oil side of the markets. So in the case of U.S. administration, so there was a proposal for the United States to start covering and providing insurance coverage because right now this is a war zone, and because of that, a lot of the private insurance pulled back.

So United States, U.S. Treasury is ready to step in and to provide this backup insurance coverage, but also provide military escorts, military convoys through the Strait of Hormuz. So this is the focus right now on the market, how fast that could be done.

What is the comfort level of those producers, yes, and the pilots to pilot those boats and how fast that can be restarted. So a lot of questions we're receiving about that. Yes, the U.S. military has the capability of doing that.

That was done, for example, last year in the Gulf of Aden during the conflict with the Houthis in Yemen. The numbers are substantially higher in the Strait of Hormuz. But in addition to that, you know, clearly there's unconventional military measures that Iran is going to employ.

Yes, it's the naval water mines, it's the drone swarms, it's the speed boats and so on. So in general, our assumption is that the U.S. and the Israeli military would first try to degrade the Iranian capabilities of manufacturing the drones, manufacturing the missiles to have full coverage of the area. We're also watching very closely whether the United States has enough naval capacity right now in the region to be able actually to provide those escorts.

And so hence our conclusion is that it will take most likely weeks before all of that, you know, comes into fruition. We're watching very closely the announcements about SPR releases. IAEA says that for now, that's not a serious consideration.

Similarly, the U.S. administration is messaging to the markets that for now, they're not considering further draining the U.S. SPR. So Otar, on the gas side, are there any measures that realistically could be done?

Unfortunately not. So we are talking about 17 percent of global LNG supply and the rest of global LNG market is pretty much operating at near full capacity. The export market.

Yes, we may see some marginal volumes coming from U.S. exporters, maybe Australian exporters, some other producing countries on the back of lower maintenance in summer, which is usually the maintenance season, which can potentially be incentivized by higher gas prices, LNG prices globally. But we are talking about few BCM here and there. We are nowhere close to 100 BCM.

One option that theoretically can be a solution is reintroducing Russian gas to Europe, which will be a big step change in European energy policy. And it's probably less realistic at this stage, given the war in Ukraine is still ongoing. So the way we see the market balance is if this situation continues is through demand disruption.

So instead of substituting the missing supply, we are pretty much adjusting the demand to new baseline supply, new reality. So that's the view we are taking and we are trying to solve for the demand disruption price, which will be the new equivalent price for global LNG market, which we estimated to be somewhere near 60, 70 euro per megawatt hour range in the summer months on a normalized basis. Obviously, if we see oil prices 100, 120 range, TTF prices will spike.

But we think over medium term, this is the fundamental range where we expect it to normalize in this new reality that we are entering. Yes. So for oil is similar.

Of course, we're looking at this 100 to $120 overall messaging is $10 down, $30 up. So every time there's some messaging about alleviating the situation, we can see the prices stabilizing, maybe declining a little bit lower. But at the same time, it's a clearly very, very large asymmetric risk considering the numbers we're dealing with and the risks around the Strait of Hormuz and reopening the Strait of Hormuz.

So Otar, thank you so much for joining me at such a busy time and such a short notice. To all our listeners, thank you for tuning into 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. Please refer to J.P.

This episode was recorded on March 6th, 2026.

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