“$10 Diesel by December” - JPMorgan Has No Clear Oil Endgame Due to War in Iran

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Patrick Bet-David (0:30)

JPMorgan Chase is being asked about what they think is going to happen with oil. Give us an opinion, Will. You're an analyst at JPMorgan Chase. What do you think is going to happen? Here's what the analyst said. This is a Bloomberg article. More than six months after the start of the Iran War, JPMorgan Chase, oil analyst, are stating what many traders have been saying privately. The path to the end of the war is increasingly impossible to predict.

So if you can't predict how it's going to end, I cannot tell you what's going to happen to oil prices. Several economic red lines the bank assumed the administration would be unwilling to cross, including oil above $100 a barrel, gasoline near $5 a gallon, surging treasury yields have already happened, making the exit strategy less clear. Analysts including Natasha Kaneva said in a note, the market is on edge, in our view.

The analysts wrote oil fair value in September is estimated around $90 a barrel, prices through close to $106, and implying the market is pricing at a risk of additional 4 million barrels a day of supply losses on top of the 10 million barrels a day already disrupted. So it seems like the market can't see what's going to happen to oil prices. What do you say, Jeff?

Jeff (1:42)

It's not really about oil. It's like you said, it's about diesel and gasoline, and that's where the problem is. The bottleneck in energy has moved from oil to the distillates. There's a lack of refinery capacity, as Tom pointed out, in the United States, which is coming back to haunt us at the worst possible time. You've got disruptions with Russian diesel exports, which have been banned because they have their own problems over there. You've got issues with the Middle East.

Then all sorts of shortages that are going to start appearing in Asia and other places, which is going to bid up the price of diesel as well as gasoline.

With crack spreads, the crack spread is simply a market price that gives you an estimate of how the physical reality of the energy market. And the diesel crack spread right now is ridiculously high, $112 per barrel, which is insane. But that goes to show you the level of desperation and urgency in the energy market because there's that level of a potential shortfall in diesel. We're rapidly running through all the inventories and supplies as it is. So the market is basically saying, once that physical shortfall really starts to manifest itself, we don't know where prices are gonna end up. The $6, $6.50, $7 range that we're getting now in diesel is probably just the beginning. So diesel prices are gonna hit.

Patrick Bet-David (2:56)

How do you think it's gonna hit?

Jeff (2:57)

Oh, we can see $10.

Patrick Bet-David (2:58)

$10 of these, by when?

Jeff (3:01)

I have no idea, that's the thing.

Patrick Bet-David (3:03)

Give me the timeline, shortest, latest.

Jeff (3:05)

Shortest of the end of the year.

Patrick Bet-David (3:05)

Of course, we're eventually gonna hit $10, but I'm saying, like...

Jeff (3:07)

End of the year. It's that soon. It's that close.

Patrick Bet-David (3:10)

In December, diesel could hit $10 a gallon.

Jeff (3:12)

$10 a gallon. And then the consequent...

Patrick Bet-David (3:14)

Why do you say that? Based on what?

Jeff (3:16)

Again, the crack spread. The crack spread is an estimate of how much of... There's a price dislocation in the market.

Patrick Bet-David (3:21)

Is this it right here that you're talking about, the crack spread?

Jeff (3:23)

No, that's world inventories.

Patrick Bet-David (3:25)

Can you pull up the crack spread real quick? So the crack spread shows what?

Jeff (3:28)

The crack spread shows you how profitable it is to refine a barrel of oil. That's 321 crack spread, which is oil, which is gasoline plus distillate fuel.

Patrick Bet-David (3:38)

Explain it to the average person out there so they can understand.

SPEAKER_4 (3:41)

Yeah, I've never heard of the crack spread. No, in New Yorkshire today.

Jeff (3:44)

Pretty fair.

Patrick Bet-David (3:44)

I thought we were going to go to a porn opera or something.