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JPMorgan Pours Cold Water On The Crude "Demand Destruction" Story: Sees Crude Spiking Over $130 By June

Tyler Durden's picture




 

As if the implied US downgrade was not bad enough for ostritches whose heads are infatuated with sand, here comes JPM's Lawrence Eagles destroying the myth about crude demand destruction, so aggresively spun by a flaiiling Saudi Arabia which can not afford to admit that the only reason it can not hike production is because it is already at capacity. From JPM: "Our refinery activity projections show that crude throughput (demand
for crude) will rise by at least 2.7 mbd between now and August, and
will need to be much higher to avoid a steep second half 2011 product
stock draw. Minister al-Naimi’s comments imply OPEC March production
at below 28.4 mbd, and thus a steep increase in supply will be needed
over the coming months to meet our estimated 29.7 mbd call on OPEC in
3Q11.
The reality is that following a supply shock, the oil market can
sometimes need wider than normal differentials to trigger the economic
adjustments. If supplies are not increased decisively for June liftings be prepared for price spikes over $130/bbl." Translation: $5 gas average prices are now virtually an inevitability.

From JPM

Saudi Oil Minister Ali al-Naimi recently offered an unusually candid look at Saudi oil production, saying that while February hit 9.1 mbd, March was down to 8.3 mbd and production will only be a little higher in April. He cites the decline as evidence that the market is oversupplied. He has just cause.

Undoubtedly demand for OPEC crude “feels” weak at the moment due to domestic refinery turnarounds and Japanese outages. Our refinery maintenance estimates show 6.5 mbd off line in April compared to peak throughput in December. But there is a real danger that by responding to regional market conditions for specific crudes, OPEC is setting the stage for further global price spikes. Excluding markets around landlocked Cushing, crude inventories are very tight (see figure to right). And with refineries coming back from maintenance amidst surging summer demand, stocks will quickly draw further. Our refinery activity projections show that crude throughput (demand for crude) will rise by at least 2.7 mbd between now and August, and will need to be much higher to avoid a steep second half 2011 product stock draw. Minister al-Naimi’s comments imply OPEC March production at below 28.4 mbd, and thus a steep increase in supply will be needed over the coming months to meet our estimated 29.7 mbd call on OPEC in 3Q11. Many of OPEC’s “typical” buyers are out, so they likely have to offer an even wider discount to induce alternative refiners to take an unusual crude slate. That will go against the grain - OPEC felt it was ‘pushing on a string’ in 2005, the last time Brent/Dubai got this wide, because it felt ‘it was taking money off the table.’ The reality is that following a supply shock, the oil market can sometimes need wider than normal differentials to trigger the economic adjustments. If supplies are not increased decisively for June liftings be prepared for price spikes over $130/bbl.

 

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Mon, 04/18/2011 - 09:56 | 1180129 Herne the Hunter
Herne the Hunter's picture

Look out, it's the GS/JPM good cop/bad cop tag team...

Mon, 04/18/2011 - 10:01 | 1180144 Drag Racer
Drag Racer's picture

more like keystone flops...

Mon, 04/18/2011 - 10:20 | 1180228 CPL
CPL's picture

They are off by $20 a barrel.  $130 is wishful thinking.  $150 by the end of June.  $180 by September.

 

The "demand destruction" happened the last time this all crashed and it stayed there.  People that didn't need a car gave it up.  Those that did their cash for clunkers went smaller.

Mon, 04/18/2011 - 17:42 | 1181897 ZeroPower
ZeroPower's picture

Hi CPL,

My guess is JPMs comm desk is simply caught short (hmm.. Deja Vu?) the stuff. After GSs neat spin on oil (only reason it retreated from that $113 high last week) JPM decided to pull out their own little ace of spades. Unfortunately for JPM, their research desk isn't nearly as respected as GSs and thus this report was a dud. Nothing but a big red close on the CL today.

Longer term, oil is inevitably bound to break those '08 highs, but IMO not this soon.

Ask yourself, is the economy running at the pace it was in '07-'08? Anyone know who isn't brainwashed by the MSM surely knows the answer to that question. Another argument mght be, there's simply less of it than there as 3 years ago? Hardly, we consume more thanks to the BRICs, well we started drilling more too. We don't even "need" Libya to be over to see <$100/barrel, we just need the markets to continue at their pace of slowing, as well as with a slowing in the recovery, and we'll surely find some rest under $100.

Longer term fully agree it'll be >$150, but i'd hate to have to wager on this year.

 

 

Mon, 04/18/2011 - 09:59 | 1180147 silvertrain
silvertrain's picture

There same team, they work together to sheer sheep..I wouldnt believe anything any of the mf's say..

Mon, 04/18/2011 - 09:56 | 1180134 NOTW777
NOTW777's picture

counter to GS copper call :)

Mon, 04/18/2011 - 10:01 | 1180157 firstdivision
firstdivision's picture

but..but...China's demand is supposed to exceed the US....wasn't that one reason cited for the run up in crude along with equities?

Mon, 04/18/2011 - 11:29 | 1180551 Urban Redneck
Urban Redneck's picture

Someone has to foot the bill for King Abdullah's wealth transfer scheme.  The wealth certainly isn't going to be transferred from the Big 5  in the Kingdom to the peasantry.  The plan since Abdullah's return from Morocco has been to present the American peasants with the bill for the Saudi peasants' new subsidies.  This is the price tag for Bowing-Boy-Barry dissing Abdullah's buddy Hosni. 

Mon, 04/18/2011 - 10:04 | 1180159 tmosley
tmosley's picture

Are you SURE they aren't just planning do the regular and screw their clients and anyone dumb enough to listen to them.

I think oil is going up as well, but Goldman seems to produce nothing but noise with these calls, with no usable information transmitted (playing the "I know he knows I know, but does he know I know he knows I know?" game).  

Mon, 04/18/2011 - 10:04 | 1180162 Long-John-Silver
Long-John-Silver's picture

Staycation summer Bitchez!

Mon, 04/18/2011 - 10:02 | 1180166 johnQpublic
johnQpublic's picture

5$ gas and economy go boom.....

Mon, 04/18/2011 - 10:06 | 1180180 Sudden Debt
Sudden Debt's picture

We'll see in a few months if you're right...

 

I would have said 6$, it would have given you a extra few months...

 

 

 

Mon, 04/18/2011 - 10:04 | 1180173 Sudden Debt
Sudden Debt's picture

And where do they SEE SILVER by june?

 

I SAY AT 45$ BY FRIDAY!

Mon, 04/18/2011 - 10:10 | 1180190 mynhair
mynhair's picture

GPL now on sale in the lobby......

Mon, 04/18/2011 - 10:21 | 1180242 Cole Younger
Cole Younger's picture

Silver seems to be crashing. HMMMMMM

Mon, 04/18/2011 - 10:39 | 1180336 Sudden Debt
Sudden Debt's picture

By crashing it need to be -10%, and when it's green it's not exactly crashing

 

Have some more mushrooms ;)

 

 

Mon, 04/18/2011 - 11:08 | 1180454 Long-John-Silver
Long-John-Silver's picture

It always does that @ 9:00 AM every fucking Monday morning.

I always buy the Monday morning manipulation dip.

Mon, 04/18/2011 - 10:05 | 1180174 ivana
ivana's picture

Ha ha ha it seems that demand really dropped and bankster midterm oil price (pumped) targets are in truble!!

Watch out: new bad "news" from Nigera, Turkey, Iraq etc!!

Mon, 04/18/2011 - 10:56 | 1180397 CrashisOptimistic
CrashisOptimistic's picture

The only way demand drops is with economic destruction.

Item: Saudi Arabia air conditioners are about to get turned on.  They don't have coal and very little natgas.  They run their power plants on oil.  It's about 500K bpd of demand about to arrivefrom there and surrounding countries oil powered electricity generators.

Item: Japan repaired their roads first to get people moving again.  Now the 0.5 miles per gallon bulldozers will start doing their thing.  And at least some power replacement for the nuclear power generators will be oil fired.  Expect a near term consumption increase PROVIDED the Japanese infrastructure allows that ramp up.  If it doesn't, then we won't be seeing parts for things in the US for a long time to come.

Item: There is no evidence at all of China slowing their consumption, and neither is there any such in India.  Chindia is the consumption growth story.  Not the US.  10% of those countries own cars and the other 90% want one and can now pay for one.

Mon, 04/18/2011 - 10:05 | 1180178 Blotsky
Blotsky's picture

3Q11 is when the fun starts. $5 a gallon gas and as an added bonus we'll get to see what the world does, or doesnt, do when the Quarterly Earnings report comes out concerning Japan and all of the industries affected by its lack of production.

/grin

Mon, 04/18/2011 - 10:09 | 1180183 long juan silver
long juan silver's picture

Believe a move to $130/June will outperform gold

Mon, 04/18/2011 - 10:16 | 1180234 MarketFox
MarketFox's picture

Of course the SEC is not going to examine JPM´s position before the unbiased report.....and do not forget about checking the positions before the SP debt downgrade story...

 

It´s all legal of course....

 

And the SEC will get their crossover jobs when the time comes....

 

FO

 

S  ecure

E  mployees

C  ompensation

 

 

Mon, 04/18/2011 - 10:21 | 1180240 samsara
samsara's picture

If supplies are not increased decisively for June liftings be prepared for price spikes over $130/bbl."

 

Here's a graph of your future.   Stop video at :20 seconds and look at the graph,  then the statement above's gravity becomes clear.  

AIN'T NO SUPPLIES gonna be increased.

Past Peak Oil Travelling Towards Transition Animation                       http://vimeo.com/15477088
Mon, 04/18/2011 - 10:20 | 1180248 digalert
digalert's picture

"energy prices will skyrocket under my plan"

Barry Hussein Obama, Nov 2008

Mon, 04/18/2011 - 10:41 | 1180341 americanspirit
americanspirit's picture

Prediction - America is going to fall in love with Vespas. Of course the Italians are going to have to supersize those little seats or there's going to be an epidemic of wedgies.

Mon, 04/18/2011 - 10:50 | 1180372 lynnybee
lynnybee's picture

of course we're going to $130.   why not !    soon it won't be worth it to drive to a $8/hour job.    & many people have these shit little $8/hr. jobs because that's all that is left here since Wall St. & Washington policy outsourced over 8,000,000 jobs in our race to the bottom.     

the latest speech from CHRIS HEDGES protesting in front of BANK of AMERICA branch in N.Y.CITY on April 15 :   http://www.youtube.com/watch?v=2GYlSsLafR0&feature=player_embedded

have a great day & be good to others. 

Mon, 04/18/2011 - 10:59 | 1180418 Bam_Man
Bam_Man's picture

These are the same guys who were calling for a 5.50% 10-year yield by EOY 2010.

A slight miss. 

Mon, 04/18/2011 - 11:08 | 1180475 BobPaulson
BobPaulson's picture

An OPEC country was lying about reserves? Say it isn't so...

Mon, 04/18/2011 - 11:37 | 1180584 AldoHux_IV
AldoHux_IV's picture

What utter and complete bullshit-- it's basically another way of saying QE and fiscal policies will now be even more designed to take out the dollar even faster.

Mon, 04/18/2011 - 12:02 | 1180683 Tense INDIAN
Tense INDIAN's picture

Oil going to 130 ....all money from stocks moving to Oil n other commodities

Mon, 04/18/2011 - 12:25 | 1180761 latizziforchizzi
latizziforchizzi's picture

 Barack Hussein Obama sounds more like a financial terrorist to me. Barry gives him too much cover...

Mon, 04/18/2011 - 13:11 | 1180936 Laddie
Laddie's picture

About 1960 the elite and the government decided it would be great to make the 3rd world nations just like the US.

The said that all of those nations would then buy all of our stuff and everybody would be richer and just a wonderful New World Order. Well now those 3rd World nations have all the manufacturing jobs we used to have, and they often send their emigres here to take what jobs remain.

China, India, rest of 3rd world are now going to OUTBID Americans for OIL, FOOD, etc.

Now the Banksters, well they got several TRILLION Taxpayer $$ and they've done well, speculating in Tel Aviv real estate for instance, yet don't you think the American sheeple, who let it all be taken from them, will just lie down and DIE? I think they will, if they gave up their nation, their HABITAT then they surely will not resist now.

 

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