Could the rise in oil prices extend? JPMorgan responds via Investing.com

Investing.xom — After weeks of volatility, prices are back more than $5 a barrel from recent lows, although they remain down $8 a barrel from a month ago.

The key question now is whether this rally will expand or fizzle out. Analysts from JP Morgan are cautiously optimistic, pointing out several factors that could support the recovery in the short term.

JP Morgan previously signaled that the market was stretched on the short side, with risk/reward dynamics favoring a price rebound.

The call proved timely as prices have risen more than $5 a barrel since then.

Following discussions with JP Morgan’s oil traders, analysts now see more upside potential, highlighting more favorable market dynamics.

U.S. crude oil inventories, particularly at the Cushing storage facility, are dwindling rapidly, with stocks that may be nearing minimum operating levels. This supply constraint could keep the market supported, preventing prices from falling too far.

In addition, the ongoing disruptions in Libyan production, which many expected to be resolved quickly, are taking longer than anticipated.

This prolonged absence of Libyan crude adds further pressure to the global supply picture.

Beyond supply disruptions, new refining capacity coming online could boost crude demand, further tightening the market.

In addition, current low prices may begin to weigh on future production growth, particularly from non-OPEC producers, whose plans may be scaled back in a lower price environment.

Geopolitical risks also remain in play, with tensions in Ukraine, Israel and Hezbollah and the upcoming US election all contributing to a volatile backdrop that could easily push prices higher.

While none of these factors alone would be enough to fully reverse the broader bearish sentiment, together they create a scenario where oil prices could normalize to higher levels.

JP Morgan adds that the recent selloff in oil prices was likely driven by the market’s anticipation of lower prices in 2025, especially given concerns about a potential supply glut.

However, analysts believe the market has overreacted, currently trading around $10 a barrel below its fair value of $82 a barrel.

Global crude inventories, the brokerage notes, are at their lowest level since 2017, currently at 4.42 billion barrels, significantly below last year’s levels when Brent was trading closer to $92 a barrel.

This disconnect suggests that the market may be underestimating the current tightness of supply, providing room for further price recovery.

Despite the optimistic short-term signals, the brokerage acknowledges long-term uncertainties. JP Morgan’s forecast for 2025 still points to significant oversupply, potentially driving Brent prices below $70 a barrel by the end of the year.

That said, analysts acknowledge that these forecasts may be too bearish by as much as 400,000 barrels per day, meaning the oversupply may not be as severe as initially feared.

Further, JP Morgan’s preliminary analysis suggests that global demand could rise by around 1 million bpd in 2026, with non-OPEC supply increasing by nearly equaling that of 900,000 bpd.