How Long Can Demand Destruction Keep a Lid on Oil Prices?
- Global oil stocks outside China are drawing down at nearly 1.7 million bpd—and even China has started tapping its reserves, eroding the inventory buffer that has kept prices from spiking further.
- China's oil demand has dropped 9%, or roughly 1.5 million bpd, as consumers shift to EVs; the key question for the market is how much of that demand comes back once the conflict ends.
- U.S. consumers have paid an extra $40 billion for gasoline since the Iran war began on March 1, with the SPR now days away from its lowest level since 1983.
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. Click to read more