JPMorgan strategists have warned of a potential surge in Brent crude prices to $120 per barrel, a situation that could significantly affect global economic growth. This forecast is based on an anticipated further tightening of oil supply in the coming months.
The strategists noted a 27% increase in oil prices over the past month, leading to a 10-month high. They attributed approximately one-fourth of this rise to an unexpected surge in oil demand. However, they believe the remaining three-fourths is due to significant reductions in supply, particularly from OPEC+, which has consistently decreased its crude production over the previous year.
If these price levels persist, JPMorgan predicts that global GDP growth could be reduced by 0.5 percentage points across two quarters. Despite anticipating Brent crude prices to decrease to roughly $86 per barrel by year-end, further pressure on oil supply could potentially elevate prices and further strain the economy.
The strategists expressed concern about potential ongoing supply cuts, which could propel oil prices to as much as $120 per barrel. Such a level would represent a 60% increase during the second half of the year. If such a scenario were to occur in the following weeks and be entirely due to supply cuts, it could lead to a significant slowdown in global economic activity.
High oil prices of this magnitude could potentially cause global inflation to rise to around 6% by year-end and reduce global GDP by 1.3% year-on-year over the next two quarters. The bank notes that such a cumulative 60% increase in oil prices is typically only seen prior to recessions.
Rising oil costs have already been flagged as a significant concern for the economy by some US market commentators. Last month, the Bureau of Labor Statistics reported that the most significant contributor to inflation was the increasing cost of gasoline, a product derived from oil. Overall consumer prices saw a year-on-year increase of 3.7%, which surpassed the anticipated 3.6%.
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