How Long Can Demand Destruction Keep a Lid on Oil Prices?
Strikes Tanker and Downs Iranian Drones What I Cover Tsvetana Paraskova is an energy and commodities journalist who has contributed to Oilprice.com for nearly a decade, covering global energy markets, commodities,… In a somewhat puzzling market development, oil prices haven't spiked yet to record highs amid the worst supply disruption in history.
That's because the market still hopes for a quick resolution to the Strait of Hormuz crisis (for more than three months now), global inventories have offered a supply buffer, the world's top crude importer, China, is staying away from spot purchases, and last but not least, demand destruction is accelerating amid the high prices.
Beyond the near-term supply chaos and conflicting signals about the Middle East war, analysts are wondering how much of the current demand destruction will be permanently lost once the conflict is resolved.
Inventories Ease The Shock from Lost Supply, So Far The oversupply with which the market faced the beginning of the Iran war has helped to ease the upward pressure on oil prices as the conflict enters its fourth month.
But global stocks, except in China, are being depleted at a record pace, suggesting that the buffer is stretching thin and the true magnitude of the supply loss will hit the market very soon.
Excluding China, which has accumulatedlarge buffer stocksof more than 1.2 billion barrels over the past year, the rest of the world has seen onshore stocks draw at an accelerating pace, according to Kpler.
Global stocks drew down at a pace of just over 1.5 million bpd in early May.
This drawdown rate has now jumped to nearly 1.7 million bpd, Kpler's data showed, suggesting that further tightness could lie ahead.
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As inventories started to fall and prices spiked to $100 per barrel and beyond, consumers reduced demand.
Asian consumers have been forced to slash consumption amid soaring fuel prices and government measures to curb fuel use, including shorter work weeks and work-from-home schemes for civil servants.
are also curbing demand amid high fuel prices and air fares.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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