Oil: A current high conviction commodity
The long-term picture for oil is based, like so many things, on the needs of emerging and developing markets. For example, China's share of global oil demand has doubled over the last decade and, similar to U.S. policy, it is building "strategic reserves." China's plan calls for reserve capacity of 500 million barrels, but so far the country has less than 200 million barrels, a shortfall likely to fuel long-term demand.6
In the shorter term, however, supply now exceeds demand, although instability in Yemen, as well as Libya, could cause an interruption at any time. Additionally, if global growth stabilizes, as we expect it to do in the second half of 2012, it remains to be seen whether OPEC will have any spare capacity to meet increased demand. As a result, we believe Brent oil is attractive over the long term. In our view, it should potentially trade back up to its 2012 highs in the latter part of this year.6
The long-term outlook for oil is tied to the dynamic growth of emerging and developing markets, providing opportunities.
...with demand growth coming from China and emerging markets
| Total consumption, milllion barrels per day | Annual growth, million barrels per day |
Source: Energy Information Administration. As of June 30, 2012.
Past performance is not indicative of future results.
Global oil demand high and
trending higher...
Global oil demand, million barrels per day
Source: J.P. Morgan Securities LLC. As of May 31, 2012.
Source: Bloomberg.
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6 Source: Bloomberg.
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This message has been prepared by personnel in the [Sales and Trading Departments] of one or more affiliates of J.P. Morgan Chase & Co., and is not the product of J.P. Morgan's Research Department. It is not a research report and is not intended as such. This material is for the general information of our clients and is a "solicitation" only as that term is used within CFTC Rule 1.71(a)(9)(v) and 23.605(a)(9)(v) promulgated under the U.S. Commodity Exchange Act.