JPMorgan, Goldman Sachs Reach New Consensus: Weak Demand Is Main Cause of Oil Price Drop But Warn of Sharper Volatility Ahead

TradingKey - Catalyzed by repeated weekend closures of the Strait of Hormuz and a re-escalation of Middle East tensions, compounded by the US seizure of Iranian merchant vessels and Iran firing upon merchant ships, market expectations for a de-escalation in the Middle East have significantly cooled.

On the market front, the two major international crude oil benchmarks rose by around 6%; WTI crude futures surged over 8% in early trading to a high of $89.60 and are currently up 6.34%, while Brent crude futures are trading up 5.8% at $95.62. Both major crude futures have largely recouped the losses from last Friday (April 17).

Goldman Sachs stated that although shipping volumes through the Strait of Hormuz remain significantly down, downside risks to oil prices have risen if Persian Gulf supplies recover faster than expected, supported by smaller-than-anticipated production outages and ample regional storage capacity. The firm maintains its 2026 average price forecasts for Brent and WTI crude at $83 and $78 per barrel, respectively, assuming that transport through the Strait of Hormuz gradually returns to normal by mid-May.

The firm further noted that oil demand is noticeably weak—particularly for petrochemical feedstocks and jet fuel—due to high refined product prices and margins, which could lead to further declines in oil prices.

JPMorgan reached the same "conclusion" from a different perspective. The bank stated that the recent anomalous slump in physical crude oil prices superficially reflects market expectations for de-escalation, but structurally, there has been no improvement in fundamentals.

The firm further explained that the current crude oil supply side has not improved; Iranian oil exports have dropped to near zero under US blockade measures, further widening the market deficit. Although inventories serve as a buffer, they are being depleted at a rapid pace, with visible global inventories having fallen by nearly 265 million barrels. Given the decline in both supply and inventories, crude prices should have risen, yet the market experienced an anomalous drop. JPMorgan believes the only rational explanation is weak demand.

JPMorgan warned that on the current trajectory, OECD crude inventories will approach minimum operational levels around May 15, at which point refinery production cuts will deepen, and the market may face more severe price volatility.