"International Oil Prices Still High"... Demand Destruction Begins

India and China Likely to Substitute Demand with Inventory
Consumption Decline Due to Oil Price Rise
JP Morgan Sets Year-End Target Price at $86

International oil prices plummeted amid concerns of an economic slowdown leading to reduced crude oil demand, but prices remain high, indicating that "demand destruction" has begun. Demand destruction refers to a phenomenon where prolonged price surges cause a decrease in demand for a commodity.

Natasha Kaneva, head of JP Morgan's Global Commodities Strategy team, said in a memo to clients on the 4th (local time) that "due to rising oil prices, demand suppression is becoming visible again in the US, Europe, and some emerging countries," according to the US economic portal Yahoo Finance.

JP Morgan explained, "China and India led global crude oil demand this year, but due to the sharp rise in oil prices, China chose to utilize domestic inventories in August and September."

JP Morgan also noted signs that consumers reduced consumption after gasoline prices hit their highest levels this year last month. While US gasoline demand exceeded expectations in the first half of this year, the surge in oil prices in the third quarter suppressed demand.

In the case of diesel, construction companies, transportation industries, and farmers have recently felt a sharp increase of over 30%, increasing the burden of freight and food costs. Jet fuel demand continued to rise in the third quarter, causing airlines such as United Airlines and Delta Air Lines to suffer from higher costs.

JP Morgan stated that oil prices reached $90 per barrel last month, earlier than their target forecast, but they maintain their year-end target price at $86 per barrel.

International oil prices had been rising due to concerns over supply disruptions following news that Saudi Arabia and Russia extended their production cut deadlines until the end of the year. Last month, international oil prices hit their highest levels of the year, with an average increase of 28% in the third quarter.

However, with expectations that high interest rates may persist longer than anticipated and growing concerns that an economic slowdown will reduce crude oil demand, oil prices turned downward on the 4th.

Callum McPherson, an analyst at Investec, said, "Market attention, which was previously focused on short-term supply disruptions, has now shifted to the implications of prolonged high interest rates, the resulting macroeconomic environment, and discussions at the November OPEC+ meeting."