JPMorgan on the IEA’s stimulus

Posted by Cardiff Garcia on Jun 24 18:33.

Most of the commentary we’ve seen about the IEA’s announcement has understandably focused on the political ramifications (a shot across the bow at Opec) and, more frequently, its effect on oil price forecasts.

But what about the macroeconomic impact?

As far as we can tell, JP Morgan is first out of the gate in attempting to place a precise number on the amount of (don’t-call-it-a-) stimulus this will give to the consuming countries involved in the release:

The broader economic impact of this policy action is potentially significant. If our projections are realized, the IEA  release provides the equivalent of a $140 bn stimulus to consumers (albeit with offsetting impacts on flows to producing countries) based on the change in crude prices from 2Q2011. Relative to the $130/bbl we had been expecting for 3Q2011, the benefit is closer to double that amount. The release will prove stimulatory to the global economy, particularly for Emerging Markets and the US. As such, if other economic headwinds can be overcome, it will have the effect of bolstering not just the world economy, but oil demand. This could create additional upside pressures on prices in 2012, particularly if, against our assumptions, Libyan output remains offline. For the time being, our 2012 forecast remains unchanged, but will be reviewed in the next Oil Market Monthly.

As for those forecasts, JPM lowered its target for Brent crude in the third quarter from $130 a barrel to $100 (and for WTI from $116 to $85).

The whole note, which you can find in the usual place, lists a few necessary caveats — including the all-important allocation mechanism and the pace at which these countries will seek to replenish their reserves, which will influence oil demand next year.

In the meantime, two charts, the first showing JPM’s updated forecasts and the second a handy chart showing the expected amount of oil to be released by each country:

Oh, and the JPM strategy note’s title, fittingly enough: “QE2 Ends, IEA1 begins”.

Related links:
The SPQR – FT Alphaville
Speculators, slapped – FT Alphaville
Goldman’s history lesson on oil releases – FT Alphaville

This entry was posted by Cardiff Garcia on Friday, June 24th, 2011 at 18:33 and is filed under Capital markets, Commodities. Tagged with , , , .

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