JPMorgan said in a note on Wednesday that, after several months of supply disruption related to conflict in the Middle East, the global oil market has shifted back into surplus.
The bank estimates the market returned to an excess of 1.1 million barrels per day in September and expanded to about 1.4 million bpd in October - a level very close to last years average surplus of 1.3 million bpd. JPMorgan pointed to both inventory readings and trade-flow data as evidence that previously displaced barrels are being reabsorbed into the market.
Data cited by the bank show global crude imports rising to 44.9 million bpd in October, an increase of 1.3 million bpd compared with the same month a year earlier. That pickup in flows coincides with a pronounced recovery in exports from the Middle East, which the bank estimates climbed to roughly 20.7 million bpd after dropping to a low of 9.8 million bpd in March. JPMorgan noted, however, that Middle Eastern export volumes remain below pre-war levels.
Additional supply growth elsewhere has also contributed to the surplus. JPMorgan estimated that Latin America is supplying about 1.5 million bpd more crude than a year ago, led by increases from Brazil, Venezuela, Guyana and Argentina.
On the demand side, the bank assessed that global consumption has declined since the outbreak of the conflict. JPMorgan estimated total global demand had fallen by around 3.3 million bpd since the start of the conflict, attributing the drop to the combined effects of high fuel prices and the earlier supply disruptions, which curbed consumption.
Taken together, the recovery of Middle Eastern exports, rising output in other producing regions and weaker demand led JPMorgan to conclude that supply has reasserted itself over consumption, producing an observable surplus in recent months.
Context and implications
JPMorgan's analysis points to inventory accumulation and higher trade flows as the market mechanisms showing surplus conditions. While the bank highlights the return of barrels to the market and regional output gains, it also flags that current Middle East export volumes have not yet returned to pre-war levels.