Oil prices experienced a substantial surge during the last quarter, surging by an average of 28%, reaching a pinnacle in September, as supply constraints imposed by OPEC+ and additional cuts from oil giants Saudi Arabia and Russia created a significant market deficit. With the price per barrel hovering around the $90 mark, experts are now expressing concerns about a potential decline in oil demand for the current quarter.
JPMorgan analysts recently weighed in on the matter in a client note. Natasha Kaneva, the head of the global commodities strategy team at JPMorgan, authored the report titled “Demand destruction has begun (again).” She predicted that the inventory draws witnessed during the summer season would shift toward a slight build in the final months of the year. Kaneva also noted that the impact of surging oil prices on demand was becoming evident in regions like the United States, Europe, and certain emerging markets, including China and India, both of which have contributed significantly to global oil demand growth. In August and September, these countries opted to tap into their domestic crude inventories as oil prices continued to rise.
One notable consequence of the 28% surge in oil prices is the effect on gasoline costs, as the price of gas soared to its highest level of 2023 in September, mainly due to supply constraints. Kaneva and her team observed that consumers may have reached their tolerance threshold for expensive gasoline and have started reducing their fuel consumption accordingly.
Furthermore, diesel prices experienced a substantial 30% increase, significantly impacting various sectors such as transportation, construction, and agriculture. The elevated costs of freight and food production have also had a cascading effect on the economy.
The aviation industry was not spared from the consequences of surging oil prices, with jet fuel prices also on the rise. This prompted a wave of warnings from airlines struggling to cope with the increased operational costs.
While the prices of West Texas Intermediate (WTI) and Brent crude futures momentarily surpassed $93 and $96 per barrel, respectively, they have since pulled back. As of Wednesday, WTI was trading above $86 per barrel, and Brent was trading above $88 per barrel. Whether these recent highs signify the culmination of this price rally or merely mark the beginning of a trend of demand destruction remains uncertain.
It is imperative to keep a close watch on oil and its derivatives’ price movements. Elevated levels of consumption can potentially lead to supply shocks, while reduced consumption, if demand destruction takes hold, can have equally significant repercussions. The coming months will be crucial in determining the direction in which oil prices and global demand are headed.
In conclusion, the remarkable rally in oil prices during the last quarter, driven by supply constraints and production cuts, has raised concerns about a potential decline in oil demand. These developments have had widespread repercussions, affecting gasoline, diesel, and jet fuel prices, and have implications for various industries. As we move forward, it is essential to closely monitor oil prices and their impact on the global economy.
Source: Yahoo Finance
