Crude Soft, But JP Morgan says Demand is Good

Iran states yet again that other countries can't make up for its export shortfall. File Image / Pixabay

Although oil prices on Monday dropped early in the session due to concerns that the U.S. trade war with China would negatively impact demand in the latter country, the losses were pared on the strength of China's central bank announcing it would slash lenders' reserve requirements - which is widely viewed as a move that might spur economic growth.

Brent hit a session low of $82.66 and then bounced back to trade 43 cents lower at $83.73 per barrel, while West Texas Intermediate settled down 5 cents to $74.29 (having earlier dropped to $73.07).

Phil Flynn, senior market analyst at Price Futures Group, remarked, "Every time China cuts interest rates, they increase oil consumption; cooler heads are prevailing."

John Kilduff, founding partner at Again Capital, added, "The reaction by the Chinese to the slowdown there is a salve the market started to price back in."

Also said to be pressuring prices was India's oil minister on Monday stating that two Indian companies have ordered barrels from Iran in November, which further indicates that the U.S. sanctions against the Islamic republic may not, as some analysts fear, result in a full shutdown of Iranian exports and a massive market tightening.

Given trading in recent weeks, crude could be headed for another week of volatility, but for Monday at least there seemed to be a sense of calm emanating from the analytical community, exemplified by Scott Darling, regional head of oil and gas research at JPMorgan Chase & Co.

Darling told Bloomberg television that, "if you look at refining margins, we thought demand would moderate because of high prices, consumer reaction to higher prices, [but] if you look at refining markets, they've held up reasonably well this year, which is a sort of indication of demand being relatively robust."

Darling added that JPMorgan sees oil prices hovering at an average of $85 next year and a high case scenario for Brent at $90, "and at the moment, the macro indicators on the oil supply and demand side are pretty robust for oil, coming off a tight market."

But the sense of calm didn't extend into Iran; there, Bijan Zanganeh, oil minister for the Islamic republic, once again saw fit to state again that the loss of Iranian crude due to the U.S. sanctions will be impossible to overcome.

He said, "Iran's oil cannot be replaced by Saudi Arabia or any other country."

Zanganeh was reacting to a claim last week from Mohammed Bin Salman, crown prince of the Saudis, that his kingdom can and will cover any Iran crude shortfalls: "If there is any loss of supply from Iran....we will supply that," he said, adding that "We export as much as two barrels for any barrel that disappeared from Iran recently."