Nowhere Near Demand Destruction Levels, MS Says

  • Oil prices are “nowhere near” demand-destroying levels, said Martijn Rats, Morgan Stanley’s chief commodity officer.
  • Rats pointed to three factors that would limit global oil supply and push prices higher.
  • “There is room for a renewed rally from this perspective,” Rats said of oil prices.

According to Martijn Rats, senior commodities strategist at Morgan Stanley, oil prices are far from falling on the back of shattered demand.

Oil has fallen from its highs earlier this summer as Western nations first imposed sanctions on Russian oil and competition for alternatives increased. Brent crude rose to around $130 before steadily declining – but that was likely due to rising prices of oil products and not oil itself, Rats told CNBC on Friday.

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He noted that gas prices peaked at $180 a barrel and diesel prices at $190 a barrel before the market saw demand destruction – suggesting current prices have room to rise before they do reach a critical point.

“From that perspective, we’re nowhere near prices that are destroying demand. From that perspective there is room for a renewed rally,” said Rats.

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He pointed out that there are three factors facing the oil market that would likely push prices higher.

The first is OPEC’s recent announcement of a production cut. Wednesday’s cartel would cut 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 oil consumption.

Second, US Strategic Petroleum Reserve releases are falling as the excess supply that the US has put on the market since April is set to dry up this month.

After all, there is an increased probability of interruptions in Russian supplies. Russian oil exports have fallen ahead of the European Union’s ban on Russian oil, which is due to come into effect by the end of the year. The nation has also threatened to cut oil production in response to a planned price cap on Russian oil by the G7 countries. If the Kremlin implements a production cut, it will put more strain on the global oil supply and likely push up prices.

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“All of that is coming together over the next few weeks or months or two, and when these things come together, I think that’s going to push prices back up,” Rats said.

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