JPMorgan experts with an eye on oil prices: "The destruction of demand has begun"

• Oil prices at the end of September at their highest since November 2022
• Continued high oil prices could slow global GDP growth
• JPMorgan experts predict “demand destruction.”

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Oil prices at their highest in September

Oil prices hit a one-year high in late September after U.S. inventories fell to levels already close to operating minimums. Along with the price rise came speculation that oil prices could rise to $100 a barrel in the coming months. The US bank Goldman Sachs recently raised its price target for the next twelve months to $100, as yahoo finance reports. Concerns about a supply shortage also intensified. In particular, production cuts by OPEC+, unilateral production restrictions by Saudi Arabia and export restrictions by Russia have recently given oil prices a steady boost. “There are other results that say oil prices are actually going up to $100 a barrel,” Ed Hirs, an economist and energy scientist at the University of Houston, told Yahoo Finance last Wednesday. “The only thing that would keep oil prices very low would be the implosion of the Chinese economy.”

Impact on the overall economy

Experts have therefore recently been considering what effects persistently high oil prices could have on the overall economy. “On net, we estimate that recent oil price movements, if sustained, would dampen annual global GDP growth by 0.5 percentage points over two quarters,” wrote Bruce Kasman, head of economic research at JPMorgan, and his Team according to yahoo finance. Continued supply cuts could push the price of Brent crude oil as high as $120 a barrel. “We expect that if this were to happen in the coming weeks and was due solely to supply cuts, the global economy would come to a near standstill next quarter,” they said.

JPMorgan analysts: “Demand collapse has begun”

However, analysts at JPMorgan expect crude oil demand to fall later this quarter after the recent rally. “After hitting our target of $90 in September, our year-end target remains $86,” said Natasha Kaneva, head of the global commodities strategy team at JPMorgan. In the USA, Europe and some emerging countries, a decline in demand is repeatedly becoming apparent, which can be attributed to rising oil prices. “Demand destruction has begun,” reads the title of the JPMorgan note. “China and India drove global oil demand growth this year, but China decided to rely on domestic crude stocks in August and September following the rise in oil prices,” the experts said.

And oil prices have also recently been clearly noticeable for end consumers. Although demand for gasoline in the US was above analysts’ expectations in the first half of the year, an increase in gasoline prices in the third quarter of 2023 led to a dampening of demand, explains Kaneva. As far as diesel is concerned, the statement emphasizes that the recent 30 percent price increase has been particularly noticeable for construction companies, transport companies and farmers, thereby increasing the costs of freight transport and food production. The price of jet fuel also rose in the third quarter, prompting warnings from airlines like United Airlines, Delta Airlines, American Airlines and others that faced higher costs. However, oil prices have fallen again since peaking at the end of September. The WTI price was last at $85.79 per barrel, the price of a barrel of Brent crude oil was at $87.54 (as of October 10, 2023).

Editorial team finanzen.net

This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.

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