Recently, as the Palestinian-Israeli conflict intensifies, investors are generally concerned that this war may further push up crude oil prices, but JPMorgan seems to disagree. In its latest report, the bank pointed out that investors should pay attention to the extent of the decline in global oil demand.
Small Mo strategists point out that while there is reason to worry that the war between Israel and Hamas may escalate into a broader Middle East conflict, it is unlikely to drive a long-term surge in oil prices.
They predict that even if the fighting spreads beyond Israel and Palestinian territories, it is unlikely to lead to a long-term surge in oil prices. There are tangible signs that high oil prices, exacerbated by soaring borrowing costs and depreciation of emerging market currencies, are beginning to erode fuel consumption
According to data from JPMorgan Chase, oil demand in countries such as Thailand, Japan, and South Korea has decreased, and the total import volume of crude oil from Pakistan, Bangladesh, and Sri Lanka is also decreasing. Prior to this, the bank had observed that due to high summer prices and the end of the peak tourism season, consumers were leaving and demand was disrupted.
Although geopolitical concerns have pushed Brent crude oil prices to over $90 per barrel, the bank believes that such high prices will not last for long.
The report states: "In addition to the short-term surge caused by geopolitical factors, our basic prediction for oil remains that the significant inventory reduction observed in the third quarter of 2023 will transition to a basically balanced market in the fourth quarter of 2023, with Brent crude oil prices reaching $86 by the end of this year
At present, JPMorgan Chase does not believe that the Israeli-Palestinian conflict will escalate into a regional war. The bank claims that Israel, Iran, the United States, Saudi Arabia, and the United Arab Emirates all have strong motives to contain the conflict. The fact that major energy producing countries such as Saudi Arabia and the United Arab Emirates have not supported the implementation of an oil embargo against Israel or its allies proves this.
In addition, JPMorgan Chase stated that in most past conflicts in Israel, oil prices have rarely experienced long-term volatility. Since 1967, although the country has experienced 10 major military conflicts, most of them have led to brief price increases due to early concerns.
In the end, oil prices tend to gradually stabilize and decrease. In these situations, short-term supply and demand balance and the resulting changes in oil inventories are more important factors than wars, "the report added.