J.P. Morgan forecasts lower oil prices in Trump’s upcoming term

Crude oil futures ended a week of strong gains sparked by rising geopolitical risk, as the Russia-Ukraine war intensified with Ukraine using Western-supplied long-range missiles for the first time and Russia responding with a new intermediate-range ballistic missile.

“What the market fears is accidental destruction in any part of oil, gas and refining that not only causes long-term damage but accelerates a war spiral,” PVM analyst John Evans said.

The market is also looking to next month’s OPEC+ meeting for a decision on whether to extend production cuts into next year; analysts believe the group probably will, since it would be risky to raise output because of weak demand, and difficult to deepen supply cuts because some members want to pump more.

This week’s U.S. inventory data, meanwhile, were slightly bearish, with the EIA reporting a 545K-barrel build in crude stocks compared to expectations of an 800K-barrel draw.

Front-month Nymex crude (CL1:COM) for January delivery finished the week +6.4% to $71.24/bbl, and front-month January Brent (CO1:COM) closed the week +5.8% to $75.17/bbl, the best settlement for both benchmarks since November 7; on Friday, WTI was up 1.6% and Brent added 1.3%.

U.S. natural gas (NG1:COM) pulled back Friday after a five-session rally prompted by the arrival of winter temperatures to drive up demand; the Nymex front-month December contract ended the week +10.8% at $3.129/MMBtu after falling 6.3% on Friday.

ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (USOI), (UNG), (BOIL), (KOLD), (UNL), (FCG)

J.P. Morgan predicts a decline in oil prices during President-elect Trump’s upcoming term, anticipating a large surplus of 1.3M bbl/day and an average Brent price of $73/bbl in 2025, falling to below $60 by 2026.

The bank sees global oil demand growth dropping from 1.3M bbl/day this year to 1.1M bbl/day next year, adding that China is expected to lead oil demand growth for the last time before India passes it in 2026.

“Trump’s energy agenda presents downside risks to oil prices from deregulation and increased U.S. production, while also posing upside risks by exerting pressure on Iran, Venezuela, and possibly Russia to limit their oil exports and revenues,” JPM wrote.

Goldman Sachs, in its latest forecast, estimated Brent at $76/bbl on average next year, potentially rising to the mid-$80s if supply from Iran drops by 1M bbl/day due to stricter sanctions enforcement.

In the medium term, Goldman sees price risks skewed to the downside due to high spare capacity and potentially higher U.S. tariffs hurting demand.

Energy, as represented by the Energy Select Sector SPDR Fund (NYSEARCA:XLE), was +2.7% this week.

Top 20 gainers in energy and natural resources in the past five days: Nano Nuclear Energy (NNE) +54.8%, Eco Wave Power (WAVE) +53.8%, Solaris Resources (SLSR) +41%, Oklo (OKLO) +40%, U.S. Goldmining (USGO) +35.7%, Fuelcell Energy (FCEL) +34.4%, Nuscale Power (SMR) +31.3%, Icon Energy (ICON) +29.9%, Texas Pacific Land Trust (TPL) +27.2%, Solaris Energy Infrastructure (SEI) +24.4%, Centrus Energy (LEU) +23.8%, YPF Sociedad Anonima (YPF) +23.6%, Eos Energy Enterprises (EOSE) +23.3%, Austin Gold (AUST) +23.2%, Indonesia Energy (INDO) +22.2%, Bloom Energy (BE) +21.8%, Profrac Holding (ACDC) +20.5%, Nexgen Energy (NXE) +20.3%, Fluence Energy (FLNC) +19%, Skeena Resources (SKE) +18.8%.

Top 5 decliners in energy and natural resources in the past five days: Battalion Oil (BATL) -46.7%, Silvercorp Metals (SVM) -12.3%, Tamboran Resources (TBN) -10.1%, Scully Royalty (SRL) -9.7%, ZIM Integrated Shipping (ZIM) -8.9%.

Source: Barchart.com