- Brent seen at $66 next year as US shale set to pull back and OPEC+ faces tough choices
JP Morgan has cut its oil price forecasts sharply, warning that a mix of aggressive trade policy and shifting signals from OPEC+ have blown apart previous assumptions about supply and demand dynamics.
Brent crude, which hit the bank’s 2025 target eight months ahead of schedule, is now expected to average $66 a barrel next year, down from the earlier $73 estimate. For 2026, the bank has lowered its forecast to $58.
The shift comes as the Trump administration continues to press for lower fuel prices, with a markedly different policy stance to the previous White House.
Under President Biden, the US government acted to limit price declines, replenishing the Strategic Petroleum Reserve when WTI fell below $70. That created a de facto floor for the market.
But JP Morgan now believes intervention under Trump is unlikely unless prices collapse to $50, removing that safety net and sending the market’s floor much lower.
The bank also sees major implications for US shale producers, who are likely to absorb the bulk of the pressure.
It expects to see around 115 rigs cut starting in July, leading to a fall in US crude and condensate production by 2026.
That pullback won’t just hit oil output; it’s also expected to weaken the supply of associated natural gas, with knock-on effects for Henry Hub prices, which could see support as shale drilling slows.
While OPEC+ could benefit from this retrenchment in the US, gaining market share in the process, the outlook is far from straightforward.
JP Morgan’s latest modelling suggests that if the alliance wants to stabilise the market at around $60 Brent in 2026, it would not only need to roll back recent production increases but implement further cuts on top.
That’s a tall order, especially given the growing tensions inside the group and rising political pressures in key member states.
The change in tone from OPEC+ itself has also contributed to JP Morgan’s more cautious view. Analysts at the bank noted a shift in the cartel’s “reaction function” - industry jargon for how it responds to price signals - suggesting a greater tolerance for short-term weakness and a less aggressive approach to managing inventories.
For now, the geopolitical backdrop is piling on more uncertainty. Escalating trade tensions, particularly around energy-linked tariffs and export restrictions, are clouding the outlook for global demand.
JP Morgan stressed that the new trade regime is a meaningful break from the past decade’s rules-based globalisation and is likely to introduce more volatility into commodity markets for the foreseeable future.
The implications for UK investors, particularly in the oil majors and energy-linked equities, could be significant.
Shares in Shell and BP have held up relatively well amid the recent swings in crude, but if JP Morgan’s outlook proves accurate, earnings assumptions may need to be revisited.
With the price floor now far less certain, the market may be entering a period where black gold looks a lot cheaper, and potentially a lot less predictable.