The iron rule of supply and demand!JPMorgan: Oil prices are too high, supply has not increased, demand shows signs of slowing | Anue Juheng

With oil soaring above $100 a barrel due to too little supply and too much demand, the only way to lower oil prices is to do the opposite – increase supply or decrease demand. However, there has been no sign of a recovery in supply so far, but JPMorgan has seen signs of demand receding over the past few weeks due to high prices.

Natasha Kaneva, head of commodities research at JPMorgan, wrote: “After a month of oil prices not seen in nearly 10 years and weeks of record high fuel prices, high-frequency data suggests consumers are starting to respond. “

A drop in demand may have played a role in the previous failure of oil prices to break records above $147 a barrel.

Brent crude futures rose 1.4% to $120.65 a barrel on Friday; WTI crude futures rose 1.4% to $113.90 a barrel. The Energy Select Sector SPDR ETF (XLE-US) rose 2.2%.

In Europe, mass travel, which rebounded after the Omicron outbreak, has now fallen, while China has re-emerged lockdown measures as the outbreak worsened.

“In China, road congestion data shows that driving in China’s largest cities fell sharply in March in response to a surge in Covid-19 cases and a regional government-imposed lockdown,” Kaneva wrote.

JPMorgan lowered its estimate of China’s oil demand in the second quarter by 520,000 bpd, assuming a three-month lockdown in China.

In the United States, demand in most regions has been rising until recently. However, vehicle miles driven in California are starting to flatten, which Kaneva attributes to high gasoline prices. While JPMorgan has so far not changed its U.S. demand forecast, it could.

JPMorgan expects the oil market to shift from a shortage to a slight oversupply in the second quarter. However, the estimate is based on the assumption that Europe will continue to buy Russian oil in the coming months.

“Europe is the single largest buyer of Russian oil, and the faster Europe cuts Russian oil imports, the higher global oil prices will rise. If Russian exports fall by 3.8 million b/d, crude oil prices could surge to $185 a barrel ” Kaneva wrote.