“The cure for high prices is high prices,” as the saying goes in commodity markets. According to JPMorgan Chase & Co., the process in oil may be just getting started.
Oil prices have risen to almost $100 per barrel as a result of Russia’s invasion of Ukraine, putting a strain on consumers. However, the bank claims that the actual war in Ukraine, financial penalties against Russia, and the growth of the omicron version in China have all had a greater direct influence on oil demand than the higher costs.
In a note published Thursday, JPMorgan analysts including Natasha Kaneva wrote, “High prices are definitely not the sole demand-destructive force in the world at the time.”
JPMorgan slashed its demand projection for the second quarter by 1.1 million barrels per day, and dropped its outlook for the subsequent two quarters by around 500,000 barrels. According to the researchers, “revisions are mainly focused in Europe, which remains the heart of the geopolitical shock.”
They claim that data suggests customers are starting to react after a month of record-high fuel costs. Since Russia’s invasion of Ukraine, Brent crude has soared to over $139 per barrel, the highest level since 2008.
The belief that the oil market’s “extreme aversion” to Russian crude will lessen is one of JPMorgan’s basic assumptions. It predicts that “stranded” Russian oil will fall to 2 million barrels per day in April, then to a constant 1 million thereafter, down from 3.5 million in March. According to the bank, Brent will average $114 a barrel in the second quarter and $101 for the rest of the year.