JPM Sees Brent Spiking As High As $130 Unless OPEC Steps In

Tyler Durden's picture

And some more bullish news for inverse consumption from JPM's Lawrence Engles Daily Note On Oil: 'As long as key economies remain on track, and given the tensions still manifest on the supply side, we remain positive on near-term price outlook and expect 2Q2011 Brent crude to average $118/bbl, prices possibly spiking towards $130/bbl, if OPEC fails act in time and raise production." Basically we are no recreating the "goldilocks" economy from late 2007/early 2008 when everyone thought crude at $150 was sustainable. And back then there wasn't quite as much "speculative actions driven by too much liquidity" as noted earlier by Charles Plosser.

Full JPM note:

WTI futures prices made fresh 2 ½ year today, as positive economic data from China and renewed Middle East tensions bolstered prices. In a pattern that has become all too familiar in recent months, foreign governments called for their nationals to leave Yemen ahead of any potential deterioration in the security situation there. Yet despite this and other challenges that beset the world economy, we see continued economic growth supporting oil prices. India, which we expect to increase oil use by nearly 200 kbd this year, should start its 180kbd Bhatinda refinery imminently. Reassuringly, economic growth is being translated into increased demand for crude.

The outlook for growth is not without risks. Japanese economic activity will be materially weaker in the short run, with the World Bank predicting that the recovery effort will take five years. Arguably, a bigger risk is that the world’s manufacturing supply chain experiences shortages, as affected companies seek to recover production after last month’s earthquake, which affects growth. Elsewhere, Chinese growth remains on track, according to data released overnight. The PMI survey registered an increase to 53.4, having softened over the last three months. But the rebound was weaker than expected, suggesting tighter policy measures aimed at controlling inflation could well be having an impact on growth. Nevertheless, Chinese oil demand remains robust, with 1Q2011 up 1.2 mbd on a year earlier. Reports indicate that diesel exports are again under pressure from healthy domestic demand, reversing the earlier recovery from end-2010 tightness. As long as key economies remain on track, and given the tensions still manifest on the supply side, we remain positive on near-term price outlook and expect 2Q2011 Brent crude to average $118/bbl, prices possibly  spiking towards $130/bbl, if OPEC fails act in time and raise production.

With two of its eight refineries (Sendai and Kashima) severely damaged due to the earthquake, JX’s reduction in imports comes as no surprise and confirms our view about lower refinery runs next month. While it has boosted run rates at its Negishi refinery since restarting it last week, the overall crude throughput will still be lower than originally planned. As we note in our Oil Markets Monthly, the effects of the earthquake on Japan’s ability to process crude will linger until 2012.

In our Oil Markets Monthly, we raised our Oil price forecast for 2Q2011 to $118/bbl on the basis of the issues in Libya looking larger and more protracted than our, and the market’s initial expectations. The March manufacturing PMI of China rose from February’s level confirming that growth of manufacturing has picked up, after falling for the past three months.

Another US unemployment number below 9% was an indication that job growth has been sustained in 2011 so far, and positive minor revisions were issued to the figures released in February. Despite some softer economic figures released over the last month in housing, manufacturing activity and consumer confidence, job growth has been able to build upon the gains made so far in 2011. The ISM Manufacturing figures due out at 10 AM EST will provide another data point in the evaluation of the health of the US economy.


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Dr. Engali's picture

Opec can't step in. So it looks like we are going to have to take it.

A Man without Qualities's picture

And we won't even be able to afford the Vaseline..

krispkritter's picture

Of course not, it's made from oil...

SheepDog-One's picture

OPEC said a week ago $130 oil is fine with them. I dont see what JPM is mumbling about.

asteroids's picture

Should the FED tighten and actually remove all that funny money oil will drop like a stone. Food for tummy or food for cars. FED can't have it both ways.

Cash_is_Trash's picture

It's all good because the ICE and NYMEX will raise the margins - brilliant!

Move the goalpost you bitches, it's all going exponential anyway!

SteveNYC's picture

Combine this, with the Wal Mart CEO's message yesterday, and you can deduce three things:

1) The poor are pretty much f*cked, and will forever be reliant on Uncle Sam. From this, we can say the currency is baked.

2) It is almost end of days for the middle class, as more and more will drop into 1) above, and those that don't will have less and less of their earned "pie" to eat

3) The corporate and top 1% takeover picks up steam and goes up another gear


writingsonthewall's picture

Yeah - fuck you JPM you Dimon cocksuckers.





averagejoe's picture

Been there done that and bought the T shirt.

nope-1004's picture

JPM comments on where crude is going?  Hardy har har.

Crock of shit.  Why comment on something you manipulate?  As a cover, of course.

Cocksuckers manipulate metals so bad, the fraud runs so deep, they stink like the bankster scum that lines my toilet.

Cdad's picture

Now now's that kind of talk that really hurts J. Dimon's feelings.  If you continue, he will end up reporting to a camera somehwere and whining about how hard it is ripping off and arbitraging to death the entire globe.

"Computer...Romulan ale for my friend."

speedy's picture

But Dian L. Chu says with all that inventory in cushing the traders are going to have to take delivery of their futures contracts and oil is going down to $90 bbl.

Hmmmm... who is right?

A Man without Qualities's picture

Given the games played at Cushing, it could even go negative (which happened for Nat Gas in Europe a few years ago) as sellers have to pay to get rid of it...

Cdad's picture

"Computer...create more tank farms, Cushing."

There.  Done.

SilverBaron's picture

China will gladly take delivery for their strategic reserves.

LeBalance's picture

Dearest JPM,

The issue as you well know is the overproduction of the valuing mechanism, the dollar.

Have a nice day.

tekhneek's picture

Yeah agreed. Good explanation.

It's prettty safe to say there's no point in considering things a "price" anymore. It's just an exchange rate now... and all that matters is how quickly you exchange a rapidly depreciating (hyperbolic, even) asset into an appreciating asset (silver, gold, oil)


John McCloy's picture

Just for confirmation JPM means stepping in with rhetoric and not actual action?

DonnieD's picture

I thought OPEC already "stepped in"?

tallen's picture

Feels so earily similar to 2008.

The Count's picture

Every time crude goes up by $10 CNBC parades an 'expert' that claims that we can live with that price level. Fact is that every $10 over $100 costs us 1 percent of GDP, so that we will probably not have any growth which means that our house of cards will fall real soon. 

Citxmech's picture

Once they remove the debt ceiling, all will be well - you'll see.

"To infinity... and beyond!"

Rikki-Tikki-Tavi's picture

like it or not Saudi plc is one business which can pass on costs to the consumer - we shall shortly see if the same goes for the average company when Q1 earnings hit the wire.

malikai's picture

That's ok because David Kelly from JPM just said that high oil prices don't affect inflation.

SheepDog-One's picture

When JPM talks about inflation theyre only reffering to silver.

malikai's picture

Dom Chiu on in the loop, said buy the dip about 5 times in one clip.

Is it too late to go 9:1 long in NFLX?

FrankIvy's picture

Crude @ 20 - expansion, "modern life."

Crude @ 50 - expansion, "modern life."

Crude @ 100 - recession, "regression."

Crude @ 150 - long term, deep recession, stagflation, "severe regression."

Crude @ 200 - depression, violent stagflation, "rapid regression."

Crude @ 250 and up - revolution, "neo-neolithic age."  See Olduvai gorge theory.

Citxmech's picture

But didn't Obama just say that all we had to do was increase the U.S.'s oil supply?

Seriously - no speach writer could misapprehend the difference betweenthe words "increase production" and "increase supply" - that was intentional obfuscation of the issue.

Another big Rodan-sized swan is on the way...

Flakmeister's picture

O is just pandering to the "Drill, baby, Drill" crowd...US oil production is basically stuck where it is. The Bakken can, at best, offset declines from off-shore. There might even be the occasional up-tick, but it is essentially statistical noise.

And it has nothing to do with leases and what not. For all intents and purposes, the US is getting blood from a stone as we speak.

Idiot Savant's picture

Off topic question for you Flak. Do you know the status of the Tiber Oil Field since it was capped last year? Is oil being pumped from it? If not, is there concern about pressure build-up behind the BP cap? Any word on if the field is leaking in the gulf?

Flakmeister's picture

Can't comment on the Tibur...

i-dog's picture

"increase the U.S.'s oil supply"

+1. Well spotted!

No need to drill when you can just invade someone else who is already operating a large pool.

tmosley's picture

Crude above $100 drives investment in development of alternative energy, as much as some people hate to even entertain the thought that anything other than the status quo could possibly work.

Crude above $200 makes currently available alternative energy economical, and as such ventures scale up, the costs will fall.  Some people can't tell the difference between capital investment (like solar panels), and marginal costs (like oil).  Capital exists in order to decrease marginal costs.  That is the only reason for its existence.  If economics didn't work, humans wouldn't exist.  Those who argue for the death of human civilization as a result of peak oil believe they can overturn reality with their questionable logic.  Lucky for the rest of us, that ain't so.

Flakmeister's picture

You also neglect that the cost of alternatives usually scales with the price of oil. It is called the Law of Receding Horizons. Most of the time, when something is economical at oil equals X, the hucksters, probably deliberately, forget to mention that the cost of inputs will also rise thereby making the process borderline economical..

I have been hearing for years that the Green River "oil shales" will be profitable at 35, 45, 55, 65.... Here we are at ~$110 and they still can't turn it into oil profitably...

And there is that old bugaboo of yours, EROEI. You cannot cheat thermodynamics with printed money...

Flakmeister's picture

 I'll lay a gedanken on you:

Imagine you are on some reasonably large island, you have all the technical manuals you need, a large enough workforce, ability to produce food at ~2 x subsistence levels and the a priori knowledge that resources exist in the ground but you dont know where. There are also a few common ores, Fe, Cu, some met. coal. etc... that can be exploited by hand labor. You have some but limited wood; i.e. enough to provide implements, housing materials. The replenishment rate for the wood is such that you are in steady state at current consumption.

What do you do? You know how to drill for oil, mine for coal, build windmills, solar panels, whatever. But you must create the infrastructure with the available excess energy you have.

You could say, we burn all the wood to smelt metals and dig for coal or drill for oil. You had better find it before the wood runs out. Because when the wood is gone, you are fucked.

That my friend is the parable of EROEI. 

Actually, you are fucked before the wood is gone. You are fucked earlier than that. Just like Easter Island

Hansel's picture

+1 again, I love a good gedanken.

Extrapolating, what happens if you contaminate the food supply in your effort to extract more energy?  :headassplode:

snowball777's picture

You use all three so that the wood remains sustainable, the useless stuff from the ground is fully utilized, and your future of sustainable WWS power is guaranteed, of course.

tmosley's picture

Once again, you don't understand the difference between capital and marginal costs.  

Solar panels last for a very, VERY long time.  Over their lifetime, which is unknown since the first ones still work, they produce "free" energy that can be used to produce more solar panels.  This is called "capital accumulation".  Once enough capital is available, it can and will be used to produce anything and everything.

Hell, you can build a solar forge out of a parabola and a bunch of mirror pieces that gets hot enough to melt tungsten.  That fact by itself renders your argument meaningless, unless you are going to try to tell me that it takes a trillion megawatt hours to make a MIRROR.  If you want something more practical, you can build a large lens to do the same thing.  Take a fairly wimpy tech like that and heat some water and turn a turbine.  Simple.  

You guys keep comparing the Earth to Easter Island, but you continually fail to understand that it was the governments, not the economies that ate up all of the wood there.  The chieftains all wanted the biggest and best statue.  Hell, we don't even know if those people recognized property rights.  Without property rights, all resources are consumed until there is nothing left.  You can compare our fisheries to Easter Island for that reason, but not our power generating system.

Flakmeister's picture

I understand the differences very well about costs, you do not understand the thermodynamics as you have amply demonstrated many times..

At the base of any economy the energy production/extraction must produce a surplus. It is this surplus that all economic activity is based on.

In the parable, sure you can build CSP but that will require an unsustainable rate of wood usuge. If you can you manage your wood supply such that the net extra energy you get from CSP will allow you curtail your wood consumption you are home free.

I never said the Island parable was a no-win situation. The parable relates to the fact that we must use our energy endowment in a way that becomes self-sustaining and significantly net energy positive.

And don't play that crap with "governments and economies" on Easter Island. You are being disingenuous.

Long-John-Silver's picture

There are no true alternatives to oil and coal. You can't replace the laws of thermodynamics no matter how many politicians attempt to do so. Oil and Coal are energy dense elements. So called alternative energy sources contain a fraction of energy as Oil and Coal. The fractional difference is so great that they become irrelevant as replacements. Right now waste wood produces a larger amount of electric power for the grid than all Wind and Solar power combined.

snowball777's picture

Link? Or just empty aspersions?

And is a fraction of the energy content better than 0 energy from a no-longer-existent resource?

tmosley's picture

Again, you don't understand the difference between capital and marginal costs.  Capital is used to gather energy--it doesn't go away.  Fuel is marginal--it CONTAINS energy.  Unless you are producing it at a rate greater than or equal to its use, you are in for hurt.  But CAPITAL produces energy that can be used to generate MORE CAPITAL.  Once you have "enough" capital, you can make whatever you like, while continuing to expand your capital base.

Upcoming technologies need VERY LITTLE energy input to produce powerful, longlasting nigh indestructible solar cells.

Flakmeister's picture economy is more than solar panels on your roof to run the microwave to make popcorn...

snowball777's picture

I completely agree about increased cost of current energy sources driving support for new sources, but humans managed to exist for quite awhile before economics went past the "leave the weak behind" (demand-side economics?) stage.

As for peak oil wiping out civilization, it won't, but during the gap between when oil is no longer able to keep pace with the growth of civilization and when other sources come online in sufficient capacity to handle our current standard of living that standard will decline  rather precipitously. While alternative energy is the only real sustainable path, it will take decades for it to reach a point where it can support society as we know it, but we don't have decades left to do that preparation anymore.

The key will be spurring investment in the alternatives before we lose the cushy life provided by black stuff from the ground. Sadly, there are many vested interests working as hard as they can to prevent a smooth transition in the name of short-term profits from their dying revenue streams.


Flakmeister's picture

Yep... well said. We have about 1.25 trillion barrels of goo or stuff that can be made into goo that 95% of transportation infrastructure is designed for. We have to figure out how to phase in a new infrastructure out of this endowment...

samsara's picture

" it will take decades for it to reach a point where it can support society as we know it"

Wake me up when you can run a plant to make D10 Caterpillars et al (Start to finish) using solar panels.

And while you're at it, have that wind turbine crank out a few hundred tons of some of that long chain Polyethylene while you're at it.