Vehicles heading east out of Los Angeles. Vehicle miles traveled in California are starting to flatten out as gasoline prices remain high.
Frederic J. Brown/AFP via Getty Images
Oil prices have spiked above $100 per barrel because there is too little supply and too much demand. To get prices down, either supply has to rise or demand has to fall.
So far, there is little sign of supply coming back. But in the past few weeks, there have been some signs that demand is dropping in response to high prices.
“After a month of oil prices we have not seen in nearly a decade and weeks of record-high fuel prices, high-frequency data suggest that consumers are beginning to react,” wrote Natasha Kaneva, head of commodities research at J.P. Morgan.
That drop in demand may be one reason that oil has not risen to new records above $147 a barrel. Brent crude, the international benchmark, rose 1.4%, to $120.65 a barrel on Friday. West Texas Intermediate, the U.S. benchmark, was up 1.4%, to $113.90. The Energy Select Sector SPDR exchange-traded fund (ticker: XLE) was up 2.2%.
In Europe, mobility is declining after rebounding from the initial Omicron wave, and China is imposing new restrictions on movement due to a Covid wave there.
“In China, road congestion data show that driving in major Chinese cities has dropped significantly in March as Covid cases grow exponentially and the government enacts regional lockdown measures,” Kaneva wrote. J.P. Morgan lowered its estimate for Chinese oil demand by 520,000 barrels a day in the second quarter, assuming a three-month lockdown.
In the United States, demand had held up until recently in most areas. In California, however, vehicle miles traveled are starting to flatten out, which Kaneva blames on high gasoline prices. For now, J.P. Morgan isn’t changing its demand expectations for the U.S. but that could change.
J.P. Morgan expects the oil market to flip from a supply deficit to a slight oversupply in the second quarter. That said, JP Morgan’s assumptions are based on the prediction that Europe continues to buy Russian oil in the coming months.
“As the single largest buyer of Russian oil, the more rapidly Europe seeks to cut Russia’s imports, the higher global oil prices will rise. In the event of a full 3.8 million barrels per day drop in Russian exports, crude oil prices could soar to $185 per barrel,” Kaneva wrote.
Write to Avi Salzman at [email protected]
