Oil may be about to spike, and JPMorgan has trades to play it
NEW YORK: Oil prices, already at more than three-year highs, may be about to jump further.
And, to JPMorgan Chase & Co, crude-related assets are starting to look attractive.
Brent oil could spike to US$80 a barrel if the US and European Union reimpose sanctions on Iran and as Western powers expand the scope of the Syrian civil war, JPMorgan strategists, led by John Normand, wrote in a note.
While this might ordinarily be seen like a time to avoid cyclical assets, the recent “tax gift” to US corporations and consumers makes it an opportunity to own petro assets, they said.
“Risks we thought might materialise this summer through Iran sanctions are emerging somewhat more quickly due to events in Syria,” said the strategists.
New Syrian hostilities are likely to have a muted effect on oil, however, since the nation’s production has already fallen so deeply due to the seven-year-long war.
A possible decision in May on Iran sanctions may be “the start of a process that maintains low-intensity stress on oil markets that can deliver higher prices and above-average volatility,” the strategists wrote, comparing it to the Arab Spring of 2011 rather than the major oil shocks of 1973, 1979 and 1990.
The forecast follows others calling this a good time to own energy stocks. Morgan Stanley strategist Andrew Sheets has noted that energy “has historically been a very consistent late-cycle outperformer.”
Brian Barish of Cambiar Investors and James Paulsen of Leuthold Weeden Capital Management have pointed to energy shares having been out of favour in recent years. Net bullish positions in Brent futures reached a record in the week ended April 10.