JPMorgan: $80 Oil Is 'Remarkably Cheap'

Oil prices are cheap compared to record highs of other assets including stocks and other commodities, JPMorgan Chase (NYSE:JPM) says.

Brent Crude was trading at around $81.50 on Tuesday afternoon, and the U.S. benchmark, WTI Crude, was at the $78 a barrel handle, after a group of oil-consuming nations decided to unleash millions of barrels of crude from emergency stockpiles.

Despite the fact that major oil-consuming nations see these prices as too high and hampering the global economic recovery, according to one metric JPMorgan Chase has used to compare asset prices, crude oil is actually very cheap.

“Relative to broad levels of various asset prices and the monetary base, oil looks remarkably cheap,” JPMorgan strategists led by Marko Kolanovic wrote in a note this week carried by Bloomberg.

“One could say that oil-producing countries (often developing countries) have been subsidizing oil-importing countries (often developed countries), given the broad monetary and asset inflation in the developed world over the past 20 years,” according to JPMorgan.

Current oil prices are low compared to historical levels, unlike stocks, bonds, and some other commodities that have recently hit or are close to record highs.

Oil prices at historical levels would mean $115 per barrel oil, JPMorgan says, but notes that this is not a price target or expectation of where oil could go in the short term. It is just one metric to analyze the prices of various assets, the bank’s strategists said.

While oil is below historical levels, stocks are not: they have been trading near record highs in recent days.

For example, after U.S. President Joe Biden nominated Jerome Powell for a second term as Chair of the Federal Reserve, the NASDAQ and the S&P 500 hit record highs on Monday but later tumbled to settle lower.

By Charles Kennedy for Oilprice.com