What does Brent’s gap of nearly 20 dollars per barrel mean?

  • Middle Eastern crude flows have resumed, but Brent remains near 114 dollars per barrel, almost 20 dollars above the fair value of 94 dollars per barrel indicated by J.P. Morgan’s fundamentals model. The distance between the supply-demand model and trading prices has become central to assessing oil prices.
  • J.P. Morgan does not attribute the entire gap to geopolitical risk; it also asks whether the way crude is priced has changed. A model based solely on supply and demand cannot capture all price fluctuations, so 94 dollars is a model valuation, not necessarily the level to which oil prices will ultimately fall.
  • Historical deviations have gone in both directions: during the pandemic, crude traded at a discount of nearly 20 dollars per barrel to the bank’s model value; in the early stages of the Russia-Ukraine conflict, it traded at a premium of about 15 dollars. Even when the supply-demand outlook is relatively clear, uncertainty can make price forecasting considerably harder.

How much natural gas pressure could a mild European winter ease?

  • El Niño could reduce gas use for heating and power generation through warmer, wetter and windier weather. According to J.P. Morgan’s scenario analysis, if the mild-winter forecast materializes and other conditions remain unchanged, storage levels at the end of March of the following year could be up to 6 percentage points higher than under an assumption of normal weather based on the ten-year average; more favorable wind and hydro conditions could add another 9 percentage points.
  • The bank incorporates only some mild-winter factors into its baseline model: November and December are modeled at 0.7 and 0.5 standard deviations warmer than the ten-year normal, respectively, while normal weather is assumed from 1 through March, with no improvement in wind or hydro included. Uncertainty in seasonal forecasts makes its gas demand forecast more restrained than the reduction implied by the weather forecast.
  • Recent actual data already show pressure as winter approaches. On October 12–18, average daily gas consumption in northwest Europe and the UK was 454 million cubic meters, up 13% from the previous period but still down 23% year on year; average daily net storage injections fell from 146 million cubic meters the previous week to 98 million cubic meters, a decline of 33%. Rising heating demand and a period-on-period decline in LNG sendout combined to slow injections.
  • The November forecast has also been revised colder: expected heating degree days rose by 11 over one week, though the month as a whole is still expected to be 1.1 standard deviations warmer than normal. A mild-winter trend and a recent rebound in demand can coexist; neither time window should be considered in isolation.

How pronounced is the supply pressure on Chilean copper mines?

  • In August 2026, Chilean copper production was 366 thousand tonnes, down 8.5% from the previous month and 13% year on year, mainly due to persistent severe winter weather brought by El Niño. The pressure here comes from reduced mine output, rather than stronger demand.
  • Codelco’s own mines produced 92.9 thousand tonnes in August, up 9% year on year but down 11% from the previous month. Cumulative production in the first eight months reached only about 57% of the full-year target of 1.34 million tonnes; at the current pace, annualized output would be about 1.14 million tonnes. The year-on-year improvement in one month coexists with pressure on the full-year target.

Does the rise in commodity position values signal broad-based inflows?

  • The estimated value of commodity open interest tracked by J.P. Morgan rose by 53 billion dollars, or about 3%, over one week to 2.06 trillion dollars, with energy contributing 51.5 billion dollars. The energy sector saw net inflows of 14 billion dollars on a contract basis and was also boosted by rising oil and gas prices, so the increase in position value cannot all be treated as new money.
  • Although money flowed into metals, declines in copper, silver and gold prices offset part of the effect, and the total value of metals open interest rose by only 4 billion dollars. Unlike in energy, flows and price performance in metals were not aligned.
  • The bank’s economists believe rising input costs, resilient demand and corporate pricing power are combining to create global inflationary pressure; unless financial conditions tighten significantly or consumers cut spending as oil prices squeeze their purchasing power, pressure on central banks to raise rates will continue to increase.