JPMorgan concluded that the global crude market has returned to a surplus after months marked by supply disruptions tied to the U.S.-Israeli war with Iran. The bank attributes the turnaround to a recovery of Middle Eastern exports and increased output and shipments from Latin America that together have put more oil back into international trade.
Surplus estimates and trade flows
According to JPMorgan, the market recorded a surplus of 1.1 million barrels per day in September, which widened to 1.4 million barrels per day in October. The October surplus is close to last years average surplus of 1.3 million barrels per day, a level the bank interprets as evidence of a material improvement in global supply despite ongoing shortfalls relative to pre-conflict export volumes.
The bank points to both inventories and trade flow data as signaling a growing supply surplus. Global crude imports rose to 44.9 million barrels per day in October, an increase of 1.3 million barrels per day compared with the same month a year earlier. JPMorgan says this uptick indicates that a greater volume of barrels is moving through international markets.
Middle East exports rebound but remain below pre-war volumes
Middle Eastern oil exports have climbed sharply from earlier this year, reaching about 20.7 million barrels per day in October. By contrast, exports in March were about 9.8 million barrels per day. While the rebound is substantial, JPMorgan stresses that flows have not yet returned to the levels seen before the conflict that began at the end of February.
Growing contribution from Latin America
Additional supply from sources outside the Middle East has reinforced the market balance. JPMorgan estimates that Latin America is producing and supplying roughly 1.5 million barrels per day more crude than a year ago, with Brazil, Venezuela, Guyana and Argentina accounting for much of that increase.
Taken together, the recovery in exports from the Middle East and stronger production across other regions point to a loosening of the severe supply constraints that were observed earlier in the conflict period, moving the global market back into surplus, according to the bank.
Key points
- JPMorgan estimates a global oil surplus of 1.1 million bpd in September and 1.4 million bpd in October.
- Global crude imports rose to 44.9 million bpd in October, up 1.3 million bpd year on year, suggesting more barrels are flowing through global markets.
- Latin American production and supply are estimated to be approximately 1.5 million bpd higher than a year ago, led by Brazil, Venezuela, Guyana and Argentina.
Sectors likely affected
- Energy producers and exporters, given changes in supply balances.
- Shipping and logistics, as increased trade flows imply higher volumes moving internationally.
- Oil markets and related financial instruments, which may be sensitive to shifting supply conditions.
Risks and uncertainties
- Exports from the Middle East remain below pre-conflict levels, leaving uncertainty about the degree to which supply fully normalizes.
- Earlier supply disruptions linked to the U.S.-Israeli war with Iran underscore the potential for renewed volatility if conflict-related dislocations re-emerge.
- JPMorgan flagged the question of how much of the surplus outlook is already reflected in oil prices and what additional data would be required to confirm a sustained supply surplus.
Note: The article reports JPMorgans estimates and interpretations of available inventory and trade flow data without introducing additional forecasts or external analysis.