JPMorgan Chase: The Inevitability of Rising Oil Prices
2026-04-24 19:29:27
The global energy market is experiencing severe turmoil triggered by geopolitical conflicts. The outbreak of the war with Iran in late February severely threatened the safety of navigation in the Strait of Hormuz, a vital chokepoint for global energy transport. As the conflict escalated, the disruption to shipping through the strait worsened further in April, dealing multiple blows to the supply side of the global oil market.
According to data from Gas Buddy, an oil price information platform, as of April 23, the average price of gasoline in the United States had climbed to $4.048 per gallon, a 40.4% increase from $2.884 per gallon before the outbreak of the war, marking the largest monthly increase in recent years. Meanwhile, the international benchmark Brent crude oil price rose 1.6% to $100.89 per barrel on Friday, with a cumulative increase of 65% this year. Although this price has not yet reached the highs seen at the beginning of the Russia-Ukraine conflict in 2022, market expectations for further price increases are unprecedentedly strong.
JPMorgan Chase's "Simple Mathematics" of Supply and Demand
The "simple math" theory proposed by JPMorgan commodity analyst Natasha Caneva and her team is essentially the basic supply and demand balance principle of commodity markets—any market will eventually be forced to return to equilibrium, and the sum of supply and inventory depletion must match consumption. This theory is particularly evident in the oil market because short-term demand for oil has a significant "rigid" characteristic.
In his report, Caneva explained in detail: "The transportation industry cannot function without gasoline and diesel, the aviation industry's demand for aviation kerosene is difficult to replace in the short term, and petrochemical companies must also rely on crude oil as a raw material. The demand elasticity of these industries is extremely low." This means that even if oil prices rise, the demand of related industries will not decline significantly in the short term. The market can only "force" demand to shrink through soaring prices, thereby achieving a balance between supply and demand.
Under normal circumstances, when supply disruptions occur, the market returns to equilibrium through five "regulatory levers": first, activating idle capacity to fill the supply gap; second, depleting existing inventory to temporarily fill the gap; third, the government releasing strategic reserves to increase short-term supply; fourth, refineries reducing operating rates to decrease crude oil consumption; and fifth, suppressing some non-essential demand through price increases. However, Caneva points out that the current market's regulatory chain has "broken," with the first two key levers completely ineffective.
Data shows that the global oil supply deficit reached 9.1 million barrels per day in March and further widened to 13.7 million barrels per day in April—a deficit equivalent to about 13% of global daily oil consumption. However, due to supply disruptions from Saudi Arabia and the UAE, the remaining spare global oil production capacity (approximately 2 million barrels per day) is simply insufficient to fill this gap. Regarding inventory depletion, global oil inventories decreased by 4 million barrels in March and plummeted by 7.1 million barrels in April, marking the largest monthly decline since the 2008 global financial crisis. Even so, inventory depletion only partially covered the deficit.
Current Market Situation: "False Demand Contraction" Under Supply-Demand Gap
The current market presents a peculiar paradox: while oil prices are rising, global oil demand is also declining sharply, but this contraction in demand is not driven by price factors, but rather is a "pseudo-contraction".
Research by Caneva's team shows that global oil demand fell by 2.8 million barrels per day in March and has dropped another 4.3 million barrels per day so far in April, a cumulative decrease of 7.1 million barrels per day, nearly double that during the 2008 global financial crisis. However, it's worth noting that the current oil price of $100 per barrel is theoretically insufficient to trigger such a large-scale decline in demand. "The core issue is a supply shortage, not a genuine contraction in demand," Caneva explained. "Insufficient physical supply means that some regions cannot obtain enough oil, and this unmet demand is statistically reflected as a decline in demand; essentially, it's a reflection of the supply gap on the demand side."
This "pseudo-demand contraction" exhibits a significant regional imbalance. The decline in demand is primarily concentrated in the Middle East, leading Asian economies (such as Vietnam and Bangladesh), and Africa. These regions have weaker economies, lack sufficient oil reserves, and are unable to bear the cost pressures of high oil prices. Caneva estimates that 87% of the 4.3 million barrels per day demand drop in April came from these regions. These regions generally have an oil import dependency exceeding 80%, so when supply shortages lead to a sharp decrease in imports, end-user demand naturally declines.
In contrast, demand in developed economies such as Europe and the United States has not yet declined significantly. While the European market is experiencing tight supplies of diesel and jet fuel, its well-established strategic reserves have limited the decline in demand. The United States, on the other hand, relies on its abundant shale oil resources and large inventory buffers, resulting in more resilient demand. However, this unbalanced demand pattern is unsustainable, as the global oil market is an interconnected whole, and the demand gap in emerging markets will ultimately need to be absorbed through the global market's price mechanism.
Regional Impact: Differences in Response and Pressure Affected by Different Economies
The Middle East, leading Asian economies, and Africa have become the biggest victims of this energy crisis. These regions' industrial systems are highly dependent on oil and lack alternative energy options. When oil shortages lead to price increases, business production costs soar, and residents face immense pressure on their lives. For example, India, the world's third-largest oil importer, relies on oil imports for over 85% of its economy. Rising oil prices have caused its domestic inflation rate to climb to over 7%, far exceeding the central bank's target range of 2%-6%. Some African countries are even experiencing oil shortages, with long queues at gas stations and transportation sectors coming to a standstill, further dragging down economic growth.
The core issue facing the European market is the tight supply of diesel fuel. Europe is highly dependent on diesel imports, with major sources concentrated in the Middle East and Russia. This supply chain was severely disrupted after the outbreak of the Iran-Iraq War. Current European diesel inventories have fallen to below 35% of the five-year average for the same period, and diesel prices have risen by more than 50% since the beginning of the year, leading to a significant increase in costs for industries reliant on diesel, such as logistics and agriculture. At the same time, the shortage of aviation kerosene is also beginning to affect the European aviation industry, with several airlines forced to reduce flight numbers. European aviation kerosene demand is expected to decline by about 15% in May.
The United States, with its ample domestic shale oil production (approximately 12 million barrels per day) and massive strategic petroleum reserves (about 600 million barrels), has demonstrated strong resilience during this crisis. However, as the crisis continues, the US market is beginning to feel the pressure. Rising gas station retail prices have started to dampen people's driving, with average daily traffic on US highways in March down 3% compared to February; airfares have risen 25% since the beginning of the year, leading to a slight decline in air travel demand. Caneva warned that the US's "insulation effect" on Gulf region oil supplies will gradually fade, as limited refining capacity will exacerbate the supply-demand imbalance of various oil products, especially with the arrival of the summer driving season, when US gasoline demand will enter its seasonal peak, further increasing upward pressure on oil prices.
Future Outlook: The Inevitability and Potential Peak of Oil Price Increases
Based on logical deduction using "simple mathematics," Caneva's team concluded that oil prices must rise further in order to achieve supply and demand balance in the global oil market.
Caneva's calculations show that the current global oil supply gap is approximately 14 million barrels per day. Even assuming that inventory depletion can absorb an 8 million barrel per day shortfall (this figure is an extremely optimistic estimate, as global oil inventories are finite and large-scale consumption in the long term is unsustainable), there is still a 6 million barrel per day shortfall that needs to be made up by a decrease in demand. Currently, emerging markets have absorbed 4 million barrels per day of demand decline, and the remaining 2 million barrels per day shortfall must be absorbed by developed economies such as Europe and the United States.
To achieve this goal, oil prices need to rise to a level sufficient to curb demand in Europe and the United States. The Caneva team predicts that Brent crude oil prices may need to exceed $150 per barrel, and the average price of gasoline in the United States may climb to over $5 per gallon. This price level will force consumers in Europe and the United States to reduce driving and businesses to reduce energy consumption in production, thereby further reducing global oil demand and ultimately bridging the supply-demand gap.
Geopolitical factors will further increase the certainty of rising oil prices. US President Trump stated on Thursday that he has no intention of rushing to an agreement to end the war with Iran, meaning the navigation crisis in the Strait of Hormuz could continue for months. Furthermore, tensions between Saudi Arabia and the UAE and the West are unlikely to ease in the short term, and their supply disruptions could become protracted. These factors will continue to compress global oil supply, providing support for rising oil prices.
For the global economy, the continued surge in oil prices poses multiple risks. High oil prices may push up global inflation, forcing central banks to maintain tight monetary policies, thereby suppressing economic growth; emerging markets may face the risk of debt crises and economic recessions; consumption and production in European and American economies will also be dragged down. However, from the perspective of energy market supply and demand logic, a sharp rise in oil prices has become an inevitable outcome. This "mathematical problem" triggered by geopolitical conflicts can ultimately only be solved through the price mechanism.
According to data from Gas Buddy, an oil price information platform, as of April 23, the average price of gasoline in the United States had climbed to $4.048 per gallon, a 40.4% increase from $2.884 per gallon before the outbreak of the war, marking the largest monthly increase in recent years. Meanwhile, the international benchmark Brent crude oil price rose 1.6% to $100.89 per barrel on Friday, with a cumulative increase of 65% this year. Although this price has not yet reached the highs seen at the beginning of the Russia-Ukraine conflict in 2022, market expectations for further price increases are unprecedentedly strong.
JPMorgan Chase's "Simple Mathematics" of Supply and Demand
The "simple math" theory proposed by JPMorgan commodity analyst Natasha Caneva and her team is essentially the basic supply and demand balance principle of commodity markets—any market will eventually be forced to return to equilibrium, and the sum of supply and inventory depletion must match consumption. This theory is particularly evident in the oil market because short-term demand for oil has a significant "rigid" characteristic.
In his report, Caneva explained in detail: "The transportation industry cannot function without gasoline and diesel, the aviation industry's demand for aviation kerosene is difficult to replace in the short term, and petrochemical companies must also rely on crude oil as a raw material. The demand elasticity of these industries is extremely low." This means that even if oil prices rise, the demand of related industries will not decline significantly in the short term. The market can only "force" demand to shrink through soaring prices, thereby achieving a balance between supply and demand.
Under normal circumstances, when supply disruptions occur, the market returns to equilibrium through five "regulatory levers": first, activating idle capacity to fill the supply gap; second, depleting existing inventory to temporarily fill the gap; third, the government releasing strategic reserves to increase short-term supply; fourth, refineries reducing operating rates to decrease crude oil consumption; and fifth, suppressing some non-essential demand through price increases. However, Caneva points out that the current market's regulatory chain has "broken," with the first two key levers completely ineffective.
Data shows that the global oil supply deficit reached 9.1 million barrels per day in March and further widened to 13.7 million barrels per day in April—a deficit equivalent to about 13% of global daily oil consumption. However, due to supply disruptions from Saudi Arabia and the UAE, the remaining spare global oil production capacity (approximately 2 million barrels per day) is simply insufficient to fill this gap. Regarding inventory depletion, global oil inventories decreased by 4 million barrels in March and plummeted by 7.1 million barrels in April, marking the largest monthly decline since the 2008 global financial crisis. Even so, inventory depletion only partially covered the deficit.
Current Market Situation: "False Demand Contraction" Under Supply-Demand Gap
The current market presents a peculiar paradox: while oil prices are rising, global oil demand is also declining sharply, but this contraction in demand is not driven by price factors, but rather is a "pseudo-contraction".
Research by Caneva's team shows that global oil demand fell by 2.8 million barrels per day in March and has dropped another 4.3 million barrels per day so far in April, a cumulative decrease of 7.1 million barrels per day, nearly double that during the 2008 global financial crisis. However, it's worth noting that the current oil price of $100 per barrel is theoretically insufficient to trigger such a large-scale decline in demand. "The core issue is a supply shortage, not a genuine contraction in demand," Caneva explained. "Insufficient physical supply means that some regions cannot obtain enough oil, and this unmet demand is statistically reflected as a decline in demand; essentially, it's a reflection of the supply gap on the demand side."
This "pseudo-demand contraction" exhibits a significant regional imbalance. The decline in demand is primarily concentrated in the Middle East, leading Asian economies (such as Vietnam and Bangladesh), and Africa. These regions have weaker economies, lack sufficient oil reserves, and are unable to bear the cost pressures of high oil prices. Caneva estimates that 87% of the 4.3 million barrels per day demand drop in April came from these regions. These regions generally have an oil import dependency exceeding 80%, so when supply shortages lead to a sharp decrease in imports, end-user demand naturally declines.
In contrast, demand in developed economies such as Europe and the United States has not yet declined significantly. While the European market is experiencing tight supplies of diesel and jet fuel, its well-established strategic reserves have limited the decline in demand. The United States, on the other hand, relies on its abundant shale oil resources and large inventory buffers, resulting in more resilient demand. However, this unbalanced demand pattern is unsustainable, as the global oil market is an interconnected whole, and the demand gap in emerging markets will ultimately need to be absorbed through the global market's price mechanism.
Regional Impact: Differences in Response and Pressure Affected by Different Economies
The Middle East, leading Asian economies, and Africa have become the biggest victims of this energy crisis. These regions' industrial systems are highly dependent on oil and lack alternative energy options. When oil shortages lead to price increases, business production costs soar, and residents face immense pressure on their lives. For example, India, the world's third-largest oil importer, relies on oil imports for over 85% of its economy. Rising oil prices have caused its domestic inflation rate to climb to over 7%, far exceeding the central bank's target range of 2%-6%. Some African countries are even experiencing oil shortages, with long queues at gas stations and transportation sectors coming to a standstill, further dragging down economic growth.
The core issue facing the European market is the tight supply of diesel fuel. Europe is highly dependent on diesel imports, with major sources concentrated in the Middle East and Russia. This supply chain was severely disrupted after the outbreak of the Iran-Iraq War. Current European diesel inventories have fallen to below 35% of the five-year average for the same period, and diesel prices have risen by more than 50% since the beginning of the year, leading to a significant increase in costs for industries reliant on diesel, such as logistics and agriculture. At the same time, the shortage of aviation kerosene is also beginning to affect the European aviation industry, with several airlines forced to reduce flight numbers. European aviation kerosene demand is expected to decline by about 15% in May.
The United States, with its ample domestic shale oil production (approximately 12 million barrels per day) and massive strategic petroleum reserves (about 600 million barrels), has demonstrated strong resilience during this crisis. However, as the crisis continues, the US market is beginning to feel the pressure. Rising gas station retail prices have started to dampen people's driving, with average daily traffic on US highways in March down 3% compared to February; airfares have risen 25% since the beginning of the year, leading to a slight decline in air travel demand. Caneva warned that the US's "insulation effect" on Gulf region oil supplies will gradually fade, as limited refining capacity will exacerbate the supply-demand imbalance of various oil products, especially with the arrival of the summer driving season, when US gasoline demand will enter its seasonal peak, further increasing upward pressure on oil prices.
Future Outlook: The Inevitability and Potential Peak of Oil Price Increases
Based on logical deduction using "simple mathematics," Caneva's team concluded that oil prices must rise further in order to achieve supply and demand balance in the global oil market.
Caneva's calculations show that the current global oil supply gap is approximately 14 million barrels per day. Even assuming that inventory depletion can absorb an 8 million barrel per day shortfall (this figure is an extremely optimistic estimate, as global oil inventories are finite and large-scale consumption in the long term is unsustainable), there is still a 6 million barrel per day shortfall that needs to be made up by a decrease in demand. Currently, emerging markets have absorbed 4 million barrels per day of demand decline, and the remaining 2 million barrels per day shortfall must be absorbed by developed economies such as Europe and the United States.
To achieve this goal, oil prices need to rise to a level sufficient to curb demand in Europe and the United States. The Caneva team predicts that Brent crude oil prices may need to exceed $150 per barrel, and the average price of gasoline in the United States may climb to over $5 per gallon. This price level will force consumers in Europe and the United States to reduce driving and businesses to reduce energy consumption in production, thereby further reducing global oil demand and ultimately bridging the supply-demand gap.
Geopolitical factors will further increase the certainty of rising oil prices. US President Trump stated on Thursday that he has no intention of rushing to an agreement to end the war with Iran, meaning the navigation crisis in the Strait of Hormuz could continue for months. Furthermore, tensions between Saudi Arabia and the UAE and the West are unlikely to ease in the short term, and their supply disruptions could become protracted. These factors will continue to compress global oil supply, providing support for rising oil prices.
For the global economy, the continued surge in oil prices poses multiple risks. High oil prices may push up global inflation, forcing central banks to maintain tight monetary policies, thereby suppressing economic growth; emerging markets may face the risk of debt crises and economic recessions; consumption and production in European and American economies will also be dragged down. However, from the perspective of energy market supply and demand logic, a sharp rise in oil prices has become an inevitable outcome. This "mathematical problem" triggered by geopolitical conflicts can ultimately only be solved through the price mechanism.
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