Why aren't oil prices higher? Staggering drop in energy demand leaves strategists puzzled. - Yahoo Finance

What the report says

Yahoo Finance reported that oil strategists are struggling to explain why crude prices have not returned to earlier wartime highs despite severe disruptions tied to renewed US-Iran conflict, declining traffic through the Strait of Hormuz and Houthi threats to shipping in the Red Sea. Citing a JPMorgan team led by Natasha Kaneva, the report said about 11.1 million barrels per day of supply — roughly a tenth of global demand — has been lost since the conflict began in late February, pushing global inventories to record lows.

Even with those pressures, prices have stayed below recent peaks. Yahoo Finance said Brent crude moved above $101 a barrel Thursday and US West Texas Intermediate rose past $92, but both benchmarks remained about $20 under highs reached in April and May. JPMorgan’s explanation is that the oil market has adjusted mainly through weaker demand rather than only through inventory drawdowns.

The report cited the International Energy Agency’s latest monthly oil market outlook, which now expects global oil demand to fall by 1 million barrels per day this year, compared with a May estimate of a 420,000-barrel-per-day decline. JPMorgan strategists said they had expected inventories to bear most of the adjustment while demand kept rising, but the opposite occurred.

Yahoo Finance noted that the source of the demand drop remains unclear. JPMorgan pointed to poor visibility into global inventories, especially outside OECD countries, and said China’s reduced crude imports may have eased pressure on markets. The report also cited curtailed workweeks in Southeast Asia, fewer European airline flights and large US strategic reserve releases as contributing factors, while emphasizing that the scale and speed of the decline remain unusual.