Global Commodities: What is the price of oil?
The desk's thesis posits that the current price of Brent crude, hovering around $115, significantly exceeds the model-derived fair value of $94 established by J.P. Morgan's market fundamentals analysis. This discrepancy is attributed primarily to factors such as geographic supply disruptions and heightened risk premiums. Per the full note from J.P. Morgan, these aspects underline the importance of re-evaluating crude oil pricing benchmarks in light of ongoing global volatility, especially in energy markets where geopolitical tensions often augment price variations. As the oil market is driven by both fundamental and speculative forces, a critical watchpoint will be how these dynamics evolve in the coming weeks.
What the desk is arguing
The desk argues that Brent crude's current price is overvalued based on J.P. Morgan's fundamental analysis, which suggests a fair price of $94. This mismatch raises important questions about the sustainability of current pricing levels amidst geopolitical risks and regional supply constraints.
Notably, J.P. Morgan identifies geographic and risk premium aspects as critical in understanding this disparity, drawing attention to a tight global supply-demand balance that has been exacerbated by recent geopolitical events. This analysis suggests that traders should remain cautious and consider potential price adjustments as fundamental data is disclosed.
Where it sits in our coverage
Our consensus target for oil pricing is currently established at $1.075, with a range between $1.04 and $1.12. Key projections from notable firms include: - jpmorgan: $1.10 for March 2026 - bofa: $1.04 for March 2026
The desk’s perspective aligns closely with jpmorgan, sitting slightly above the prevailing consensus, while diverging from bofa, which rests on a lower price forecast.
How other firms see it
The sentiment among the aligning firms, particularly jpmorgan, suggests confidence in a higher oil price outlook, potentially influenced by perceived risk factors. Conversely, bofa reflects a more conservative stance, anticipating lower prices amid expected supply recovery.
Given the current fluctuations in oil prices, traders should also monitor related indicators, such as geopolitical developments and central bank policy decisions, to gauge their impact on market trajectories and risk sentiment. The EUR/USD trajectory mirrors the oil price dynamic closely due to interconnected energy markets and economic outlooks.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Current Brent crude price significantly exceeds model-derived fair value of $94.
- 02Geopolitical risks and geographic supply constraints are key contributors to the price discrepancy.
- 03Traders should remain vigilant of fundamental shifts in the oil market.
- 04Firm projections highlight a divergence in price outlook among institutions.
Market implications
Traders should monitor the $94 level as a critical marker, where significant price movements could indicate a correction or alignment with fundamental valuations. Additionally, keep an eye on geopolitical developments that may influence oil supply and demand dynamics in the near term.
Risks to this view
A reversal of the current thesis could occur if geopolitical tensions dissipate significantly, leading to a stabilization of supply disruptions, or if global demand persists stronger than expected in the face of ongoing economic conditions, potentially invalidating lower pricing forecasts.
Hello, and welcome to At Any Rate. I'm your host, Natasha Kanova, and I head J.P. Morgan's Global Commodities Research.
Eight months into the Iranian conflict, some straightforward questions are becoming increasingly hard to answer. The main one is, what is the price of oil? While Brent crude oil is trading today at $115, up nearly 8% since last week, our model based on market fundamentals prices Brent $20 lower at just $94 a barrel.
On one hand, this discrepancy can be attributed to geopolitical uncertainty and risk. For example, during the COVID pandemic, crude traded at a discount of nearly $20 per barrel to our model's estimated value, while during the early months of Russia's invasion of Ukraine, prices carried a premium of roughly $15. But before we attribute today's $20 gap entirely to geopolitics, we need to ask whether something else has changed in the way that oil is being priced.
Instead, could the record high freight rates be bleeding into the global oil benchmarks? So to get to the bottom of this, let's start with the basics. So first of all, there are two main crude benchmarks in the world.
It's Brent and WTI. Both of them reflect what the market is willing to pay today for crude delivered in specific future months. But neither of those benchmarks includes the cost of transporting the oil.
So and those are the prices that we forecast, both Brent and WTI. So dated Brent, which assesses physical crude cargo's loading in the near term, is also quoted on free on board equivalent basis, which like futures prices, excludes freight to the final destination. So other benchmarks are priced a little bit differently.
So for example, Russian Urals has traditionally been priced on both free on board basis at Russian export terminals where the buyer covers the delivery cost and on a delivered basis, including cost insurance and freight at destination ports where the producer pays the expenses. Historically, however, it made little difference to the overall crude prices. Freight from Russia to Europe was typically only around $2 a barrel.
Since Western sanctions redirected Russian exports towards Asia, this opaque shipping arrangements, intermediary margins and sanctions related costs have made it increasingly difficult to determine how much producer actually receive. So most Middle Eastern crudes assessed through yet another mechanism. So for example, Saudi grades, Iraq's Basra, Kuwait's export crude are more commonly sold under term contracts using official selling prices, the so-called OSPs.
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