JPMorgan and Goldman Sachs Reach New Consensus: Weak Demand Is the Main Reason for Falling Oil Prices But Warn of More Intense Volatility Ahead

JPMorgan and Goldman Sachs Reach Consensus: Weak Demand is the Primary Driver of Falling Oil Prices, While Warning of Heightened Volatility Ahead

TradingKey - Catalyzed by repeated closures of the Strait of Hormuz over the weekend and the re-escalation of tensions in the Middle East, coupled with the U.S. seizure of Iranian merchant ships and Iran firing upon commercial vessels, market expectations for a de-escalation in the region have cooled significantly.

On the market front, the two major international crude oil benchmarks saw gains of around 6%. WTI crude futures surged by over 8% in early trading, reaching a high of $89.60, and are currently up 6.34%; Brent crude futures are currently trading up 5.8% at $95.62. Both major crude futures have largely recovered the losses seen last Friday (April 17).

Goldman Sachs stated that although transport volumes through the Strait of Hormuz remain significantly lower, the downside risks for oil prices have risen if Persian Gulf supplies recover faster than expected, supported by lower-than-anticipated production outages and ample regional storage capacity. The firm maintains its 2026 average price forecasts for Brent and WTI crude at $83/bbl and $78/bbl, respectively, contingent on transport through the Strait of Hormuz gradually returning to normal by mid-May.

The institution further noted that significant weakness in oil demand—particularly for petrochemical feedstocks and jet fuel—driven by high refined product prices and margins, could lead to further downward pressure on oil prices.

JPMorgan arrived at the same "answer" from a different perspective. The bank stated that the recent anomalous sharp decline in spot crude prices superficially reflects market expectations for a de-escalation, but structurally, there has been no improvement in fundamentals.

The institution further explained that the crude oil supply side has not improved, as Iranian oil exports have dropped to near zero under U.S. blockades, further widening the market deficit. While inventories have acted as a buffer, they are being depleted at a rapid pace, with global visible inventories having fallen by nearly 265 million barrels. Given the decline in both supply and inventories, crude prices should have risen; however, the market witnessed an anomalous decline instead. JPMorgan believes the only rational explanation is weak demand. Reportedly, European refiners are facing severe challenges as surging crude costs can no longer be passed on to product prices. Notably, hydroskimming margins in Northwest Europe have plunged to -$15.3 per barrel, which may trigger risks of production cuts.

JPMorgan warned that, based on the current trajectory, OECD crude inventories will approach minimum operating levels around May 15. At that point, refinery production cuts will likely deepen, and the market could face even more severe price volatility.

The market's primary focus remains on short-term U.S.-Iran negotiations. The key takeaway is that tensions in the Strait of Hormuz remain the primary driver of upside for oil prices, while expectations for diplomatic negotiations are capping the extent of those gains.

The core of the consensus between the two major investment banks is that fundamental shifts—such as demand weakness and the pace of supply recovery—are the key variables determining oil price trends.

Overall, the current fluctuations in oil prices reflect a tug-of-war between short-term sentiment and medium-to-long-term fundamentals. Investors should remain cautious about heightened volatility resulting from supply-demand imbalances in the future.