Oil demand destruction is here amid war in Ukraine, says JPMorgan

(Bloomberg) – Commodity markets have a well-known saying that “the cure for high prices is high prices.” According to JPMorgan Chase & Co., the process may just be starting to happen in oil.

Consumers are feeling the pinch as oil jumped over $100 a barrel after Russia invaded Ukraine. But the ongoing war in Ukraine, financial sanctions targeting Russia and the spread of the omicron variant in China have all had an even more direct impact on oil demand than those high prices, the bank said.

“High prices are clearly not the only demand-destroying force around the world right now,” JPMorgan analysts, including Natasha Kaneva, wrote Thursday.

JPMorgan cut its demand forecast for the second quarter by 1.1 million barrels per day and cut the outlook for the remaining two quarters by about 500,000 barrels. The “revisions are heavily focused on Europe, which remains the epicenter of the geopolitical shock,” analysts point out.

After a month of record fuel prices, the data suggests consumers are starting to react, they said. Brent crude has surged since Russia invaded Ukraine, trading at over $139 a barrel, the highest price since 2008.

READ: U.S. gasoline demand starts to show cracks at unlikely time

JPMorgan said its core assumptions include the idea that the oil market‘s “extreme aversion” to Russian crude will subside. He sees “stranded” Russian oil falling to 2m barrels a day in April and a perpetual 1m thereafter, from 3.5m in March. The bank said that would lead to an average Brent price of $114 a barrel in the second quarter and $101 for the rest of the year.

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Felix J. Dixon