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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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JP Morgan: Oil Could Hit $78 Within Months

J.P. Morgan beat all other investment banks in their forecasts for the price of Brent crude this year, setting its projection at US$70 a barrel. To compare, the second most bullish forecast on Brent is from Bank of America at US$64 a barrel, while Goldman is even more cautious and has not yet upgraded its Brent price forecast from its US$62 a barrel prediction.

J.P. Morgan’s reasoning is the same as the other banks’: the global economy will continue to expand, which will stimulate growth in oil demand and healthy prices. This dynamic will also drive WTI prices higher, with the average for the year seen at US$65.63 a barrel by J.P. Morgan’s oil analysts.

Despite the upbeat mood, the investment bank’s analysts do recognize the danger of growing U.S. and other non-OPEC production. So, while their price forecasts are for the average level of Brent and WTI this year, the bank’s senior oil analyst Abhishek Deshpande noted in an interview with CNBC that "This 2018 is going to be a year of two halves. The first half is going to be a ... half of demand, and the second half is more about supply, which is coming back in reaction to the higher oil prices." Related: Qatar LNG Booms Despite Embargo

The first half of the year will be so strong, Deshpande believes, that Brent could hit US$78 a barrel in the first or the second quarter. Yet in the second half of the year, drillers will increase their production in response to the higher prices, and this higher production may weigh on the benchmarks.

There is also something else that may occur before too long: a price correction resulting from the record-high bullish positions on the six most popular oil-related futures contracts. In his latest column, Reuters’ John Kemp warned that despite the already record number of long bets on these six contracts, money managers are continuing to place more, with the number of net long bets on Brent alone rising by an equivalent of 14 million barrels in the week to January 23. In total, net long bets on the six contracts swelled by 44 million barrels to 1.484 billion barrels.

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on January 30 2018 said:
    The positive oil fundamentals of the global oil market can easily support an oil price ranging from $70-$75 a barrel in 2018. If similar positive market conditions continue into 2019, then we can see oil prices rising to $80/barrel or even higher in 2019 and hitting $100 or higher by 2020. A $70/barrel will be the for for Brent oil prices in 2018.

    Prices will also be supported by a fast re-balancing of the market and also by an understanding between Saudi Arabia and Russia to maintain the OPEC/non-OPEC production cut agreement well beyond 2018 with some adjustments to reflect changing market conditions.

    On the supply side, the global oil market will ignore exaggerated claims by the EIA and IEA about US shale oil production averaging 10.3 million barrels a day (mbd) in 2018 and rising to 11 mbd by 2019. My projection for US shale oil production in 2018 is 9.25 mbd made up of 5.10 mbd of shale oil and 4.15 mbd of conventional oil. My projection allows for a 5% depletion in US conventional wells.

    The oil price has to rise beyond $100/barrel before one can talk about a price correction. I have always expressed the view that a fair price is $100-$130/barrel. Such a price will provide a great impetus to the global economy.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • petergrt on January 30 2018 said:
    While the momentum is up, the price projections will be higher . . . .

    However, the 1.5 billion barrel 'stockpile' held by speculators is more than 3x the US stock pile that is so closely watched.

    At the same time much of the US shale production is hedged, so they can pump with impunity . . . . .

    As the USD starts recovering from the oversold levels, the speculative stockpile will be searching buyers . . . .

    I am adding to my short oil positions.
  • Citizen Oil on January 30 2018 said:
    The daily oil prediction nonsense. Wasn't it just a few months ago the daily nonsense was "lower for longer" LOL Haven't heard that one for a while. Predictions we'd be in a $ 40 to $ 50 oil environment for years if not decades . Oh yeah, then we'd be at $ 10 when everyone drives an EV.
  • Vishwas on January 31 2018 said:
    As usual motivated reports from JPM. Just trying to fool the gullible. Oil prices to be down to $58-60 by end of the next month. The prices were cartelled up thinking of high demand for winter. Just ended up in building heavy stocks. Global oil demand almost static and expected to start declining within the next 2-3 years. Oil cartel's efforts to keep prices high unlikely to yield. Many oil producing countries are just waiting to breach the supply limits as this opportunity of good price may be the last.
  • Mark Battey on January 31 2018 said:
    They keep making that same bad bet. It's almost like Jamie Dimon's hatred of Bitcoin is clouding his judgment about other things.
  • John Brown on February 02 2018 said:
    This is the kind of unsupported speculation that keeps pushing oil prices higher. Everybody involved in the production of oil, transport, marketing, and oil commodity markets do everything they can to push the price of oil higher because everybody gets a cut and makes more money the higher the price goes. Never mind that there is still a glut of oil out there, that OPEC/Russia have idled million of barrels of production a day, and that the USA with WTI over $60 and now $65 is rushing to produce and hitting record amounts of production far faster than anybody predicted. Last year the USA went over $10 million barrels a day, and with WTI at $65 its like a rush for free money. Despite the fact that their is no reason for oil to be over $40 except for collusion and manipulation this is good. High oil prices support more production, of both oil and gas, and support the growing market share in renewables, and higher market share in renewables gives them the scale to drastically reduce cost, and make them more and more competitive with oil. It brings closer the day when renewable energy will be cheaper to produce than the cost of producing oil, which is also falling. If the USA and others are spurred to record production by $65 WTI what do you think will happen if WTI moves over $70? Bring it on folks. The oil industry and other industries collusion and manipulation is good for them short term, and long term? Well we'll see won't we.

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