25 Sep 2023
The largest US bank expects the global oil deficit hitting a record 7mmb/d in 2030, a staggering shortfall which would require prices to rise higher... much higher.
In a nutshell: JPM is reiterating their $80/bbl LT target and their view framed in Supercycle IV that the upside risk to oil is $150/bbl over the near to medium term term and $100/bbl LT.
The primary drivers of their structural thesis are :
1) higher for longer rates tempering the flow of capital into new supply,
2) higher cost of equity driving elevated Cash Breakevens of >$75/bbl Brent (post buybacks) as companies return structurally more cash to shareholders, in turn, pushing the marginal cost of oil higher,
3) Institutional and policy led pressures driving an accelerated transition away from hydrocarbons and peak demand fears. Taken together, their corollary is a self-reinforcing ‘higher-for-longer’ energy macro outlook as the industry struggles to justify large investments beyond 2030.
Consequently, they forecast a 1.1mbd S/D gap in 2025 widening to 7.1mbd in 2030 driven by both a robust demand outlook and limited supply sources.
