JPMorgan: High oil prices have already begun to "disrupt demand"

The soaring oil prices caused by human factors may have already begun to damage demand.

Overnight, oil prices plummeted. WTI crude oil closed at 84.43, a drop of nearly 6% for the day, marking the largest single-day decline since September last year; Brent crude oil fell 5.48%, with both oil prices falling below the key technical level of the 50-day moving average, indicating a bearish signal.

At the same time, according to the inventory weekly report released by the US Energy Information Administration (EIA) on Wednesday, US crude oil inventories fell more than expected last week, reaching a new low since December 2022, and the four-week average gasoline demand also hit a seasonal low since 1998.

Despite the larger-than-expected decline in crude oil inventories, sluggish gasoline demand has put pressure on oil prices.

In a recent client report, JPMorgan Chase stated that demand destruction for crude oil has already begun, and it is expected that crude oil demand will decline this quarter after a recent rebound.

Natasha Kaneva, Head of JPMorgan Chase's Global Commodities Strategy Team, wrote:

After reaching our target of $90 per barrel in September, our year-end target remains at $86 per barrel.

The reduction in summer inventories will turn into a slight increase in the last few months of this year. In addition, the dampening effect of rising oil prices on demand is once again evident in the United States, Europe, and some emerging market countries.

As oil prices continue to rise, the cost of oil and petroleum products will also increase, and these price increases may eventually be passed on to consumers, making goods and services more expensive. This could reduce people's purchasing power and lower their demand for various goods and services, especially those with higher fuel consumption, such as automotive fuel and long-distance travel.

Since Saudi Arabia reduced production in June this year, global oil supply has been tight, and gasoline prices reached a new high for 2023 in September.

JPMorgan Chase believes that consumers' tolerance for oil prices may have reached a limit:

There are already signs that consumers have responded by reducing fuel consumption. The surge in gasoline prices in the third quarter of 2023, in turn, has suppressed gasoline demand.

As for diesel, the report emphasizes that diesel prices have recently risen by 30%, mainly affecting construction companies, transportation companies, and farmers, increasing the cost of freight and food production.

Aviation fuel prices also rose in the third quarter, prompting warnings from airlines such as United Airlines, Delta Air Lines, American Airlines, and others that are affected by rising costs.