The week in review
- 0.2% m/m (2.4% y/y)
- Initial jobless claims jumped to 258K
- PPIs came in softer than expected at 0.0% m/m (1.8% y/y)
The week ahead
- Retail sales
- Housing starts
Thought of the Week
In late September, Israel launched an offensive into Lebanon against the Iranian-backed militant group Hezbollah. In response, Iran fired 200 ballistic missiles at Tel Aviv. Israel has vowed to retaliate. Along with devastating humanitarian consequences, further escalation could spike oil prices. While a sustained geopolitical premium does seem warranted, the impact on the crude market may be muted.
Currently, analysts believe Israel will target Iran’s missile rather than energy facilities. After all, the U.S. is far more interested in disrupting Iran’s military capabilities than global oil markets, especially ahead of an election. But should Iranian production take a hit, the market still appears well positioned to absorb the shock. While conflicts like the Iranian Revolution in 1978 caused crippling supply disruptions, the region’s share of the market has declined significantly. Around 65% of supply now comes from non-OPEC countries, and the U.S. is the world’s largest producer of oil.
Additionally, as this week’s chart shows, OPEC itself has excess production capacity of about 5 million barrels, or 6% of current supply. Member nations are planning on reviving 2.2mbd of capacity over the course of 2025 and would likely ramp up sooner should prices spike.
While the fog of war is clouding the future, modern-day oil markets are resilient. Prices fell back quickly after the Russian invasion of Ukraine and then again after Hamas’s initial attack on Israel. Nevertheless, geopolitical risk is highly elevated. Those who wish to hedge should consider investments with exposure to areas like the defense sector or global transport.
Chart of the Week: Bloomberg, EIA, J.P. Morgan Asset Managment.
Crude oil includes lease condensate. *Data begins in July 1999. Data
are as of June 2024.
Thought of the week: EIA, J.P. Morgan Asset Management.
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Originally Posted October 14, 2024 – Weekly Market Recap
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