Contrary to what many pundits have said in recent weeks JP Morgan’s analysts don’t believe the BP spill will have a material impact on oil prices. Nonetheless, they still like black gold:
“We believe the spill in the Gulf of Mexico is unlikely to cause any notable change in crude prices. OPEC has more than enough spare capacity to absorb any short-term supply issues. Also, while regulatory changes are likely to slightly increase the breakeven point for drilling in the Gulf, at current prices it is unlikely to have any significant impact on revenues. Stay long crude oil.
Its conceivable that the effect could get transmitted to the rest of the economy through other channels, in particular: higher oil prices, lower equity prices (especially for BP and other oil companies), and reduced consumer and business confidence. However, oil prices generally have not moved higher during this period, and when they did, they followed prices of equities and other risky assets. Similarly, far-forward contracts have not moved appreciably higher, suggesting that investors are not expecting new regulations to have a big effect on energy prices—presumably because these are global markets and restrictions on Gulf production will affect only a tiny share of global output. Its certainly conceivable that continuously televised images of crude pouring forth from the ocean floor could impair confidence, but the evidence suggests otherwise as sentiment gauges have generally moved up over the past month.”