JPMorgan Says Oil Prices Still Have Further to Rise

JPMorgan says oil prices may need to rise further because supply disruptions have reached 13.7 million barrels per day in April, while inventories are still being drawn down and about 2 million barrels per day of market imbalance remains. Brent was near $105.40 per barrel, more than 70% higher year to date, yet demand destruction is still concentrated in the Middle East, Asia frontier economies and Africa. Higher gasoline prices, now averaging $4.048 per gallon in the U.S. versus about $2.884 before the war, are already curbing driving and air travel demand.

Analysis

The market is moving from a price shock to a physical rationing event, which is a more durable setup for upstream equities than a simple headline spike. When inventories are being drawn while demand is still not fully cleared, the next marginal adjustment usually comes from the highest-cost, least-flexible consuming regions first; that favors producers with export leverage and low decline rates, while airlines, discretionary transport, and emerging-market importers absorb the pain. The key second-order effect is that the demand destruction is already becoming geographically uneven, so global benchmark prices can stay elevated even as weaker end-markets capitulate.

For equities, the cleaner winners are not just integrated majors but firms with optionality to free cash flow and balance-sheet repair. If Brent holds in the low-$100s, the market will likely re-rate E&Ps more than integrateds because the cash conversion is immediate and visible; however, integrated names retain a hedge against downstream weakness if refining cracks soften later in the quarter. The bigger loser set is downstream-sensitive consumer and transport names, where fuel pass-through lags price increases and volume elasticity starts to show up with a 4-8 week delay.

The contrarian risk is that the current shortage narrative may be over-earning its path dependency: once gasoline and airfare demand soften enough in the U.S. and Europe, the market could rapidly shift from scarcity to a demand-led unwind, especially if diplomatic pressure eventually restores even partial supply. That means the trade has a narrower window than the commodity rally suggests—weeks to a few months, not years. If crude keeps climbing without a visible supply response, the ceiling is not production but policy intervention and accelerated destruction in aviation, trucking, and consumer demand.

Key Decisions for Investors

• Long XLE / short JETS on a 1-3 month view: express the view that upstream cash flows hold up while airline demand and fuel costs compress margins; target is continued energy outperformance if Brent stays above the low-$100s, with stop-loss if crude retraces below the prior breakout zone.
• Overweight pure-play E&Ps vs integrated majors: long FANG or PXD, underweight XOM/CVX on a 2-4 month horizon to maximize beta to crude and avoid downstream drag; risk is a sharp inventory rebound that flattens the curve and narrows upstream torque.
• Buy call spreads on US gasoline exposure via XLY weakness proxy trades or long puts on regional consumer-discretionary/logistics names over 4-8 weeks: higher pump prices typically hit volume before headline inflation peaks, creating a lagged earnings surprise.
• Hedge a long-energy book with short airlines or short transportation ETF exposure into any Brent spike toward the next round number; the trade should be scaled out if policymakers hint at coordinated supply releases or demand-suppression measures.
• Use GS as a relative long only versus commodity beta if you want to express advisory/commodity flow strength without pure crude exposure; otherwise treat the modest positive read-through as secondary to the supply shock and avoid overpaying for the hedge narrative.