- Martijn Rats from Morgan Stanley said that oil prices are “nowhere close” to demand destruction levels.
- Rats identified three factors that would reduce global oil supply and drive prices up.
- Rats on oil prices stated, “From this perspective, there’s room to rally again.”
According to Martijn Rats (Morgan Stanley’s head commodities strategist), oil prices are not falling because of demand destruction. He warned that there were three factors which would reduce energy supply and push prices higher.
Oil has dropped from its peak earlier in the summer, when Western nations imposed sanctions against Russian oil and increased competition for other options. Brent crude skyrocketed to around $130 before steadily declining – but that was likely due to the soaring prices for oil products, not oil itself, Rats said to CNBCFriday
He noted that gas prices peaked at $180 a barrel and diesel prices peaked at $190 a barrel before the market began to see demand destruction – which suggests current prices have room to rise before hitting a critical point.
“From this perspective, we are not near prices that cause destruction of demand.” Rats stated that there is still room for rallies if we look at it from this perspective.
He said that three factors could cause oil prices to rise.
The first is The recent announcement by OPEC about a production reduction. The cartel on Wednesday they would slash oil production by two million barrels a day – a major blow to the global energy market, as OPEC+ supplies around 40% of the world’s crude oil is from Iraq consumption.
Second, the US Strategic Petroleum ReserveReleases are slowing down with the excess supply that the US has brought onto the market since April expected to dry up in this month.
There are also increased chances of Russia’s supplies being disrupted. Russian oil exports are fallingThe ban on Russian oil by the European Union was implemented before the start of the year. The country has also threatened to Reduce oil productionIn response to a G7-led price cap on Russian oil, The Kremlin’s decision to cut production will increase the pressure on global oil supplies, leading to higher prices.
Rats stated, “All that is happening over the next few weeks, or month, and I think that that will put upward pressure upon prices again.”
