JP Morgan Says Oil Vigilantes Have Been Found Wanting

Oil vigilantes have been found wanting.

That’s what analysts at J.P. Morgan said in a research note sent to Rigzone on Thursday by Natasha Kaneva, Head of Global Commodities Strategy at the company.

In the research note, the J.P. Morgan analysts noted that the term bond vigilantes has long been part of the market vernacular, “referring to the concept that if governments or central banks engage in excessive spending or policies that might lead to inflation or unsustainable debt levels, bond investors - through selling bonds - will seek to exert pressure on governments or central banks to adopt policies that they perceive as fiscally responsible, often by raising borrowing costs”.

“Oil vigilantes, on the other hand, is a concept suggesting that when challenges arise and oil prices plummet, the OPEC alliance will intervene to stabilize the market and prop up prices,” the analysts added.

The J.P. Morgan analysts stated in the research note that this perspective was echoed during a Bloomberg panel at the International Energy event in late February, “where almost 20 percent of respondents identified OPEC’s output decisions as the most influential factor for the oil market this year, compared to just three percent who viewed non-OPEC supply growth as the primary driver of price formation”.

In the research note, the J.P. Morgan analysts noted that, “as the Trump administration prepares to impose hefty tariffs on a wide range of imports starting April 2, affecting virtually all countries and increasing the risk of a recession, oil prices have indeed tumbled”.

“With Brent crude trading just above $70 per barrel - aside from a brief dip last September - prices are at their lowest since December 2021,” the analysts said in the report, adding that Brent and WTI prompt time spreads have also weakened.

“Yet, this hasn’t set off any alarms at OPEC,” the J.P. Morgan analysts said in the research note.

“Instead, the alliance has demonstrated greater tolerance for the potential adverse economic fallout from tariffs and has opted to proceed with its plan to gradually increase crude oil output beginning in April 2025,” they added.

“Those who were waiting on a ‘put’, expecting OPEC to reverse its stance, are now facing the possibility that they may have misread the market,” they continued.

The J.P. Morgan analysts stated in the note that, for the alliance to change its course, significant market imbalances, such as a sudden drop in demand or a large increase in supply leading to swelling inventories, would likely be needed.

“So far, none of these conditions have materialized - the downgrades in U.S. GDP have been almost fully offset by upgrades in Europe’s and China’s growth, keeping our demand projections unchanged,” the analysts highlighted.

“While OECD inventories are four percent above their 2000-2015 levels, they remain three percent below their five-year averages,” they added.

The analysts went on to warn in the research note that the short-term outlook is also unclear.

“Our fair-value model suggests that current Brent prices, which are hovering in the low $70s, are about $6 undervalued, but most of this underperformance is likely due to a large three percent decline in the U.S. trade-weighted dollar since mid-January,” they said.

“Net investor positioning remains short. From a technical standpoint, Brent prices are attempting to stabilize near the July 2023 channel support at $69.96, but the lack of pattern-based buy signals and the choppy nature of the recent bounce make it difficult to confidently assert that the rebound over the past week or so marks a sustainable transition to a rally phase,” they added.

The J.P. Morgan analysts highlighted in the note that, “fundamentally”, they “still anticipate Brent prices to recover into the mid-to-high $70s over the next couple of months, before dipping below $70 and ending the year in the mid-$60s, averaging around $73”.

They also warned that their outlook for 2026 “remains decidedly bearish, with substantial surpluses from 2025 extending into the following year, pulling Brent prices down to the high $50s by the end of 2026”.

“At some point between now and then, we expect the oil vigilantes to emerge,” the J.P. Morgan analysts said in the note.

Rigzone has contacted the Trump transition team, the White House, and OPEC for comment on J.P. Morgan’s research note. At the time of writing, none of the above have responded to Rigzone.

A statement posted on OPEC’s website earlier this month revealed that Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman will start unwinding a 2.2 million barrel per day cut from next month.

“The eight OPEC+ countries, which previously announced additional voluntary adjustments in April and November 2023, namely Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman met virtually on March 3, 2025, to review global market conditions and the future outlook,” this statement noted.

“Taking into account the healthy market fundamentals and the positive market outlook, they re-affirmed their decision agreed upon on December 5, 2024, to proceed with a gradual and flexible return of the 2.2 million barrel per day voluntary adjustments starting on 1st April, 2025, while remaining adaptable to evolving conditions,” it added.

“Accordingly, this gradual increase may be paused or reversed subject to market conditions. This flexibility will allow the group to continue to support oil market stability,” it continued.

To contact the author, email andreas.exarheas@rigzone.com