J.P. Morgan pares Brent outlook on softer demand

J. P. Morgan has cut its Brent crude price forecast for the second half of 2026, signalling that weaker demand and smaller-than-expected stock draws have reduced the upward pressure that had kept oil markets tense through much of the year.

The bank now expects Brent to average $86 a barrel in the third quarter and $80 in the fourth, with prices ending 2026 near $78. The revision reflects a cooler assessment of market balances after OECD commercial inventories drew down more slowly than expected and demand losses proved larger than earlier estimates.

The forecast marks a shift in tone for a market that had been dominated by supply-risk pricing, especially after disruption fears around the Strait of Hormuz pushed traders to assign a premium to barrels moving out of the Gulf. That premium has begun to fade as shipping flows improve, physical market indicators soften and traders reassess whether demand can absorb available supply at elevated prices.

Oil prices have been volatile through June, with Brent retreating from levels associated with acute geopolitical stress. The move lower has been reinforced by signs that the prompt market is no longer as tight as it appeared earlier in the quarter. A flatter forward curve and weaker physical differentials have pointed to a less urgent scramble for immediate barrels, even as some regional supply risks remain unresolved.

J. P. Morgan’s note places inventory behaviour at the centre of the reassessment. Commercial stocks in developed economies had been expected to fall sharply enough to keep refiners and consumers bidding aggressively for crude. Instead, draws have lagged expectations, suggesting that the market is not tightening at the pace previously assumed. Demand weakness has added to that pressure, particularly in fuel-sensitive sectors exposed to high prices and slower economic activity.

The change also comes as agencies and market forecasters remain divided over the path of oil demand. One strand of forecasts sees consumption under pressure in 2026 because of high prices, weaker macroeconomic conditions and demand-saving measures. Another view points to longer-term growth in Asia, the Middle East, Africa and Latin America, arguing that energy security and affordability concerns will keep oil use expanding beyond the current cycle.

For traders, the near-term issue is whether the second half of 2026 brings a sustained drawdown or a renewed surplus. J. P. Morgan expects OECD inventories to decline by a further 50 million barrels between April and July within its second-half outlook, but the bank’s lower price path suggests that the draw may not be enough to sustain the earlier bullish case. The forecast also implies that any surplus developing late in 2026 and into early 2027 could force producers to reconsider output levels after a period of maximum production.

The supply side remains equally fluid. Non-OPEC+ producers in the Americas have continued to add barrels, while the outlook for Gulf exports depends on the durability of shipping normalisation and the speed at which sanctions, insurance and logistical constraints ease. Any rebound in Middle East exports would add pressure to a market already struggling to price the balance between geopolitical risk and weaker consumption.

The United States remains a key swing factor through both production and inventories. Crude stocks have declined for several consecutive weeks, but gains in gasoline and distillate inventories have complicated the demand picture. Higher product stocks point to uneven fuel consumption, even when headline crude draws appear supportive. Refinery utilisation remains high, but lower implied gasoline demand suggests that end-user consumption may not be matching earlier seasonal expectations.

Financial markets have also adjusted to a lower oil-risk premium. Brent near the low $70s has eased inflation concerns in importing economies, but it has also raised questions about whether lower prices might revive consumption later in the year. For producers, prices around J. P. Morgan’s revised range remain profitable for many low-cost exporters but are less supportive for higher-cost drilling and capital-intensive upstream projects.

The bank’s revised numbers leave Brent well above pre-crisis bearish forecasts but below the levels implied by a prolonged supply shock. That middle path captures the market’s current uncertainty: inventories are still not abundant by historical standards, yet demand destruction has been stronger than expected, and the return of disrupted flows could reduce the need for emergency pricing.