JPMorgan's top oil analyst: Yes, oil prices are falling—but nothing has actually improved.

Since the blockade began, non-Iranian exports from the Persian Gulf have remained largely stable; however, Iran’s approximately 2 million barrels per day (mbd) of exports have virtually collapsed to zero following the Trump administration’s blockade measures. This implies that the pre-existing supply deficit—roughly 14 mbd—has likely widened further, to a range of 15–16 mbd (the variation reflects revisions in vessel-tracking data). On inventories: They are acting as a buffer—but depletion is astonishingly rapid. Since the outbreak of the conflict, global visible inventories have declined cumulatively by nearly 265 million barrels—equivalent to roughly 6 mbd—partially absorbing the supply shock and preventing an even sharper spike in oil prices. Given the limited visibility into refined product inventories, actual inventory drawdowns are likely even greater. Conclusion points squarely to demand: The only plausible explanation for falling prices. Amid tightening supply and declining inventories, spot prices should logically rise. JPMorgan argues that the sole mechanism capable of explaining falling prices is “weak demand.” Last week’s clearest signal was the emergence of negative refining margins in Europe—indicating that demand destruction has already taken root there. European refining margins turn negative: The strongest signal of demand destruction The report states that European refiners are facing severe economic strain: surging crude costs can no longer be passed through to product prices. Specifically: ・ Northwest Europe hydroskimming margins for light, low-sulfur crude fell from ~$9/bbl in mid-March to below zero by end-March, and slid further to −$15.30/bbl in the week ending April 12. ・ Cracking margins similarly deteriorated sharply, dropping to $0.80/bbl on April 12—about $26/bbl lower than their mid-March peak. JPMorgan notes that such margin compression—or outright elimination—is especially devastating for simple hydroskimming refineries, which lack the capability to convert heavy fractions into high-value products and produce ~35% low-value residual fuel oil. Unable to offset rising crude costs, the current margin environment provides ample justification for cutting refinery utilization rates. Indeed, Italy’s Sarroch refinery has extended its scheduled maintenance due to crude supply issues. ・ Medium sour cracking margins have also turned negative. The report concludes that these data collectively indicate European refiners can no longer pass through soaring crude costs to refined product prices. Rising crude prices are squeezing—and even erasing—refining margins, severely undermining refinery economics and triggering risks of production cuts. JPMorgan: Inventories to approach operational minimums around May 15 Based on the above analysis, JPMorgan issues the following key forward-looking forecasts: First, the bank significantly raises its forecast for refinery output cuts: April: Expected refinery cuts of 2.9 mbd—substantially up from last week’s forecast of 2.0 mbd.

The state has implemented temporary regulatory measures on refined oil prices, reducing the nationwide average price increase by approximately RMB 0.85 per liter—what does this mean?

IV. How do countries respond to oil price volatility? China: Government regulation + flexible pricing—a dual-track system China’s refined oil pricing follows a ‘market-linked mechanism with government-set upper and lower limits’: Under normal conditions: Prices are adjusted every 10 working days, aligned with international oil price movements; adjustments are triggered when changes exceed RMB 50 per ton. Ceiling price (>USD 130/bbl): Domestic prices are either not raised—or raised only partially—with the difference subsidized by the government or refiners. Floor price (<USD 40/bbl): Domestic prices are not lowered further; the unadjusted portion is channeled into an energy fund dedicated to energy conservation and emissions reduction. Temporary regulation (this instance): The regular mechanism is suspended, and the upward adjustment is directly capped—effectively, the government ‘pays’ ~RMB 0.85 per liter on behalf of consumers. United States: Fully market-driven; emergency response via Strategic Petroleum Reserve (SPR) U.S. refined oil prices are freely determined by the market, with no government-imposed price ceilings or floors. Following the 2022 Russia-Ukraine conflict—which drove oil prices higher—the Biden administration announced phased releases totaling 180 million barrels from the Strategic Petroleum Reserve (SPR) into the market to boost supply and suppress prices—the largest SPR drawdown to date. Europe: Tax cuts + energy subsidies—dual-pronged approach Following the 2022 surge in gas and oil prices, Germany, France, Italy, and other countries rolled out temporary energy support measures: direct energy vouchers for households and temporary reductions in fuel excise taxes. Germany, for example, cut fuel tax by ~€0.35 per liter for 90 days. Yet overall tax burdens remain high across Europe, meaning retail fuel prices—even post-tax-cut—remain markedly higher than those in China or the U.S. Japan: A ‘tax cut + producer subsidy’ package Japan implements a ‘price-difference subsidy’ for refiners: when retail gasoline prices exceed ¥175 per liter, the government compensates refiners for the differential, helping stabilize end-user prices. Since 2022, this subsidy has totaled several trillion yen. Meanwhile, the sharp depreciation of the yen has substantially increased import costs—constituting the primary driver behind the real cost increases masked by Japan’s relatively stable retail prices. Oil-producing nations (Saudi Arabia, Russia): Subsidy absorption—low prices traded for social stability Saudi Arabia, Kuwait, and other oil exporters channel hydrocarbon revenues into domestic energy subsidies, maintaining ultra-low retail fuel prices for decades (e.g., Saudi gasoline priced at under ¥4 per liter). However, this model is highly dependent on oil revenue; fiscal pressure mounts sharply when oil prices fall, prompting repeated IMF recommendations for Gulf states to reduce subsidies and diversify their economies. Malaysia, Indonesia: Targeted subsidy reform underway Southeast Asian oil producers historically maintained large-scale fuel subsidies, but are now gradually shifting toward ‘targeted subsidies’—preserving support only for low-income groups while exposing middle- and high-income consumers to market pricing—to ease fiscal burdens and steer consumption toward more sustainable patterns. V. What does ‘an average reduction of ~RMB 0.85 per liter’ actually mean? Returning to the original question: The state has implemented temporary regulatory measures on refined oil prices, reducing the nationwide average price increase by approximately RMB 0.85 per liter—what does this mean? (I) Numerically: Nearly half the increase has been ‘cut off’ Based on the international crude oil price increase during this adjustment cycle, domestic gasoline prices were expected to rise by ~RMB 1.59 per liter. After the temporary regulatory intervention, the actual increase was only RMB 0.74 per liter—meaning the government effectively absorbed RMB 0.85 per liter on consumers’ behalf. For a typical passenger vehicle with a 50-liter tank: Filling up costs ~RMB 42.5 less. Assuming an average annual mileage of 15,000 km per passenger vehicle and fuel consumption of 8 liters per 100 km, each vehicle saves ~RMB 127 annually.

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