Oil Prices Trading Above JPM Analyst Fair Value Estimates

In a J.P. Morgan report sent to Rigzone on Friday by Natasha Kaneva, head of global commodities strategy at the company, J.P. Morgan analysts, including Kaneva, said oil prices have been trading about $3-5 above their fair value estimate for August and September.

“Brent’s outperformance relative to our forecast is largely due to the lopsided build in global inventories, with China accounting for two-thirds of the increase,” the analysts said in the report.

“OECD inventories are the main driver in our pricing model, but this year only 25 percent of global stocks builds have gone into OECD storage sites versus the historical average of 40 percent, creating a valuation challenge,” they added.

“Mathematically, lower OECD intake raises Brent’s fair value, even as global stocks build, resulting in a storage premium. If OECD intake stays at 25 percent of total global builds, average oil prices in 2026 could be $8 higher,” they continued.

The analysts went on to highlight “two key questions for accurately forecasting 2H25 prices” in the report. These were, “how much spare storage capacity does China have, and will China use excess crude to increase processing and export more refined products”.

“If Chinese storage is nearly full, any oil surpluses will eventually need to appear in the ‘visible’ Western market locations that are critical for price formation, putting downward pressure on prices,” the J.P. Morgan analysts said in the report.

“We estimate that China currently has about 600 million barrels of spare storage capacity left, suggesting that, for now, stock builds will likely continue in the East – in markets that are less influential for price formation,” they added.

The analysts went on to state in the report that “stronger exports of refined products from China would help replenish depleted inventories in the rest of the world, pushing prices, spreads, and margins lower”.

“After shrinking by 80,000 barrels per day in the first half of the year, Chinese refinery runs increased by 500,000 barrels per day in the third quarter, as relatively weak demand growth in the country contrasted with well-supported margins,” they continued.

“However, the surge in processing has not led to higher exports, which remain about 100,000 barrels per day below last year’s levels. The current situation is expected to persist, given low domestic inventories of refined products, reductions in export tax rebates, and lower export quotas,” they said.

“With the oil market moving towards a sizeable surplus and uncertainty surrounding both the scale and drivers of China’s stock build, we are keeping our price forecasts unchanged for now,” the J.P. Morgan analysts stated in the report.

The report showed that J.P. Morgan expects the Brent crude oil price to average $66 per barrel in 2025 and $58 per barrel in 2026. In this report, J.P. Morgan projected that the Brent crude oil price will average $63 per barrel in the third quarter of this year, $61 per barrel in the fourth quarter, $55 per barrel in the first quarter of 2026, $57 per barrel across the second and third quarters, and $60 per barrel in the fourth quarter of next year.

Rigzone has contacted the State Council the People’s Republic of China and the State Council Information Office, the International Press Center of China’s Ministry of Foreign Affairs, and the OECD for comment on J.P. Morgan’s report. At the time of writing, none of the above have responded to Rigzone.

In a J.P. Morgan research note sent to Rigzone by the JPM Commodities Research team on Thursday, J.P. Morgan analysts noted that, for the week ending August 29, “visible OECD commercial oil inventories and Singapore stocks posted a modest gain of one million barrels”.

“Crude oil inventories declined by five million barrels, while oil product stocks surged by six million barrels,” they added.

“Over the month of August, these regions reported a cumulative increase of three million barrels in total liquid stocks. Year to date, total liquid stocks have risen by 52 million barrels,” they continued.

The analysts went on to state in that research note that, “on a global scale, total liquid stocks expanded by 39 million barrels over the past week, largely driven by a 36 million barrel increase in crude oil inventories”.

“Regionally, Chinese stocks registered an 11 million barrel uptick. Through August, China’s liquid stocks have jumped by 81 million barrels, with crude oil stocks up 84 million barrels and oil product stocks down three million barrels,” they added.

“Additionally, crude oil attributed to oil on water has increased by 52 million barrels, which is expected to be reflected in Chinese storage levels. Year to date, global liquid stocks have grown by 210 million barrels, with 186 million barrels from crude oil and 24 million barrels from oil products,” the J.P. Morgan analysts went on to state.  

To contact the author, email andreas.exarheas@rigzone.com