Oil prices witnessed a substantial 6% decline on Wednesday, sparking concerns about weakening global demand and a sluggish economy. This sudden drop in prices was attributed to multiple factors, including reports indicating a possible end to Russia’s ban on diesel exports and a simultaneous increase in oil inventories in specific regions. JPMorgan’s analyst Natasha Kaneva sounded a warning bell by suggesting that “demand destruction has begun (again).”
Both US and Brent oil prices experienced significant dips of up to 6% on Wednesday, marking a stark contrast to the upward trajectory that had persisted since July. West Texas Intermediate (WTI) crude oil traded at $84.57 per barrel, representing an 11% reduction from its recent peak at $95. In parallel, Brent crude stood at $86.12 per barrel, reflecting a 12% decline from its recent high.
Investors had been expressing growing concerns regarding the 30% surge in oil prices over the past couple of months, which led to elevated gasoline prices and subsequently impacted consumer sentiment and spending behavior.
Wednesday’s decline in oil prices was partially instigated by reports hinting at Russia’s potential reversal of its ban on diesel exports. Nonetheless, it’s essential to note that both Russia and Saudi Arabia have continued to uphold voluntary oil production cuts that had previously contributed to the surge in crude prices.
The Energy Department’s data revealing weak demand for gasoline also contributed to the decline in oil prices.
JPMorgan’s Natasha Kaneva postulated that the surge in oil prices during the summer months might have initiated demand destruction, particularly as the peak travel season winds down. She emphasized that “global oil stock draws have ended” and highlighted initial satellite stock observations that indicated an 8 million-barrel decline in global commercial crude inventories during the initial three weeks of September. However, oil product stocks surged by 38 million barrels, leading to a net increase in total commercial oil liquids of 30 million barrels.
The ongoing accumulation of stockpiles could continue to exert downward pressure on oil prices throughout the fourth quarter. It is anticipated that there will be a daily increase of 700,000 barrels in global oil liquids production, with a significant portion of this rise originating from US natural gas production.
Kaneva has established a year-end price target of $86 per barrel for oil, as she foresees further inventory accumulation as the winter months approach.