JP Morgan Analysts Look at Worldwide Oil Demand in May

Crude oil prices extended the gains made on Monday earlier today, amid expectations of stronger fuel demand in the United States, following news of a robust increase in air travel. Brent crude topped $83 per barrel in midmorning Asian trade today while West Texas Intermediate climbed closer to $79 per barrel as “real-time mobility data indicates oil demand growth is still broadly healthy,” according to UBS commodity analyst Giovanni Staunovo, as quoted by Reuters. This means that real-life demand data is going counter to analyst and trader assumptions made based on interest rates and their effect on the consumption of various commodities and goods. In fact, interest rates have been cited as possibly the main reason for bearish oil demand projections over the last few months. Meanwhile, the current rally could extend over the rest of the week, too, at least according to Rakuten Securities analysts. They attributed the expectation on OPEC+ continued production cuts and the prospect of interest rate cuts in the United States—despite few and hesitant indications that these are on the immediate agenda. Prices also got unexpected help from the world of geopolitics this week. Media on Monday reported that an Egyptian soldier had died during a clash with Israeli forces at the Rafah crossing into Gaza, which sparked suspicions the Middle Eastern conflict may yet escalate. “A confluence of factors suggest some upside sensitivity in oil — from fraught geopolitics to inventory drawdown to OPEC’s assumed preference to maintain curbs,” Vishnu Varathan, chief Asia economist at Mizuho Bank, told Bloomberg. However, “the Gaza situation is only a warning not to be aggressively short, but not quite the unbridled bullish trigger.” The extension of the OPEC+ cuts remains virtually a certainty. Any other move would plunge benchmarks below the levels that the cartel’s member consider palatable. The other factor traders would be watching in the coming weeks is how driving season is going, especially in the United States.