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$80 oil is sending the market toward demand destruction, Morgan Stanley says
CNBC ^ | SEP 29 2021 | Natasha Turak

Posted on 10/01/2021 2:06:58 PM PDT by cutty

With winter ahead and a gas crunch in Europe, the demand picture appears promising. But demand destruction could be imminent as prices climb higher, some experts are warning.

Higher energy prices will also fuel even higher inflation, which poses a significant threat to demand.

The current energy market picture is looking good for oil bulls.

International benchmark Brent crude passed the long-anticipated threshold of $80 per barrel on Tuesday, though it’s since slipped back down to trade at $78.47 as of Wednesday at 10:30 a.m. in London. West Texas Intermediate was trading at $74.73 per barrel around the same time.

With winter ahead and a gas crunch in Europe, the demand picture appears promising. But demand destruction could be right around the corner as prices climb higher, some experts are warning.

“Oil prices have disconnected from the marginal cost of supply. Instead, they are travelling to the level where demand destruction kicks in, which we estimate at ~$80/bbl.” That’s what Morgan Stanley wrote in June, and in a note Tuesday, the bank wrote: “This remains our thesis.”

It added, however, that “the price at which demand destruction kicks in can be fiendishly difficult to estimate. We leave our price forecast unchanged for now but recognise that, on current trends, upside to our bull case scenario to $85/bbl clearly exists.”

Morgan Stanley foresees global oil supply getting tighter, citing an average of 3 million barrels of crude per day of inventory draws in the last month, compared to 1.9 million barrels per day drawn in the preceding months of this year.

“These draws are high and suggest the market is more undersupplied than generally perceived,” the bank’s analysts Martijn Rats and Amy Sergeant said.

urthermore, flights and transport have picked up, with Flightradar data on commercial flights “closing the gap to pre-covid levels,” they said.

Still, not all the signs are bullish.

The World Bank said Tuesday that the Delta variant is slowing economic growth in the East Asia and Pacific region, and growth forecasts have been downgraded for most of the region’s countries. And China faces a potential slowdown with its Evergrande crisis and a growing power shortage that’s hitting factories, homes and supply chains.

“China’s economic troubles are casting a dark shadow on the demand side of the oil coin and hence the price outlook,” warned Stephen Brennock, a senior analyst at London-based PVM Oil Associates.

Higher energy prices will also fuel even higher inflation, which poses a significant threat to demand.

“Rising oil prices have been one of the biggest drivers of inflation,” Brennock said in a note Tuesday. “And a worsening inflationary situation will act as a drag on the fragile economic recovery and oil consumption. This brings us neatly onto the issue of demand destruction.”

China and India, some of the world’s top oil importers, began selling oil this month from their strategic reserves in an unprecedented move to try to lower crude prices as energy costs surged across the region. While it hasn’t succeeded in lowering global prices, it sent a significant message.

“The reason for this turn of events is price,” Brennock wrote. “At over $70/bbl, crude appears to have become too expensive for Beijing and New Delhi. ... Oil prices hitting $80/bbl will be a severe pain point for these key crude buyers and is likely to undermine import demand.”


TOPICS: Business/Economy; Extended News; Germany; News/Current Events; Politics/Elections; Russia; United Kingdom
KEYWORDS: bideneffect; coal; crunch; cuba; energy; energyprices; europe; gas; gascrunch; inflation; iran; keystone; keystonepipeline; keystonexl; keystonexlpipeline; oil; oilprice; oilprices; opec; pipeline; prices; russia; saudiarabia; venezuela; xlpipeline
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1 posted on 10/01/2021 2:06:58 PM PDT by cutty
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To: cutty
Biden needs to beg his Saudi overlords some more.

2 posted on 10/01/2021 2:10:05 PM PDT by Governor Dinwiddie (LORD, grant thy people grace to withstand the temptations of the world, the flesh, and the devil.)
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To: cutty

Talibiden is wrecking the world, not just the US


3 posted on 10/01/2021 2:11:00 PM PDT by RatRipper (The Biden Adm is leading an attack against US citizens . . . pure evil.)
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To: cutty

Be sure to thank Bugout Biden next time you fuel up.


4 posted on 10/01/2021 2:11:33 PM PDT by MNJohnnie (They would have abandon leftism to achieve sanity. Freeper Olog-hai)
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To: cutty

Demand destruction is the idea.


5 posted on 10/01/2021 2:11:44 PM PDT by griswold3 (When chaos serves the State, the State will encourage chaos)
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To: cutty

Biden going hat in hand to his overlords....?


6 posted on 10/01/2021 2:14:22 PM PDT by Don Corleone (leave the gun, take the canolis)
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To: cutty

It’s going to be real difficult for the lying media to divert blame from biden and radical left wing agendas. Even leftists know America was better off under Trump because of our independence and America first policies.

The radical Democrat party is already at a stalemate within their own ranks. I hope they FAIL!!!


7 posted on 10/01/2021 2:18:45 PM PDT by patriot torch
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To: cutty
Get your "I did that" Biden stickers

https://freerepublic.com/focus/f-chat/3999782/posts

8 posted on 10/01/2021 2:19:15 PM PDT by Pollard (Some people like to argue just to argue.)
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To: cutty

wreck-it-biden managed to set us back to the Obama years in less than a year.

might be the only thing he is good at.


9 posted on 10/01/2021 2:21:02 PM PDT by cableguymn (We need a redneck in the white house.... But the fact checkers said thein story was false!)
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To: cutty

Glad to see this!!!

Months ago i moved a bunch of money into natural resource accounts as i knew biden would destroy the economy. Did the same early in 2009 and made a killing off obama’s economic illiteracy...


10 posted on 10/01/2021 2:23:12 PM PDT by God luvs America (63.5 million pay no income tax and vote for DemoKrats...)
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To: cutty

Soon we’ll be hearing stories about how the “unusually cold winter” is a consequence of “global warming.”


11 posted on 10/01/2021 2:25:31 PM PDT by Steely Tom ([Voter Fraud] == [Civil War])
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To: cutty

The cure for high (/low) oil prices is high (/low) oil prices. In the first case, demand, and hence price, drops. In the second, low prices suppress supply, bringing about higher prices.


12 posted on 10/01/2021 2:28:17 PM PDT by Pearls Before Swine (FJB)
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To: cableguymn

“wreck-it-biden managed to set us back to the Obama years in less than a year.

might be the only thing he is good at”.

That’s because Obama has been telling him what to do.


13 posted on 10/01/2021 2:28:46 PM PDT by laplata
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To: cutty

They think $80 is “high”...lol. Writer is young or dumb.

I got back into oil Feb 1, just as Biden was cancelling our domestic production. Up around 40%.


14 posted on 10/01/2021 2:31:45 PM PDT by AAABEST (NY/DC/LA media/political/military industrial complex DELENDA EST)
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To: cutty

Biden cut our own oil supply and then this happens..........Bidens fault


15 posted on 10/01/2021 2:33:06 PM PDT by blueyon (God, is who we need)
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To: cutty

Keystone.


16 posted on 10/01/2021 2:37:33 PM PDT by wardamneagle (c)
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To: cutty

Nobody is more bullish on oil and energy than Biden.


17 posted on 10/01/2021 2:37:45 PM PDT by Theoria
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To: cutty
Its ok...we've got 10 Million people not going to work anyway....

Does CNBC understand basic economics or only the political agenda of the Left?

18 posted on 10/01/2021 2:39:36 PM PDT by G Larry (Those destroying the Constitution must demonize those who would defend it.)
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To: cutty

And deep red Texas,Oklahoma and North Dakota are simply raking in even more money from the high oil prices
Thanks Dementia Joe.


19 posted on 10/01/2021 2:54:37 PM PDT by SmokingJoe ( )
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To: Governor Dinwiddie

Iran


20 posted on 10/01/2021 3:03:33 PM PDT by Jewbacca (The residents of Iroquois territory may not determine whether Jews may live in Jerusalem.)
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