Crude oil price: the only solver is demand destruction

Crude oil price has extended its previous gains to the highest level in 9 years. In early Thursday trading, the benchmark for global oil – Brent futures – were trading at $116.68; a level last recorded in September 2013. At the same time, WTI futures reached its highest point since April 2011 at $113.35. Based on the extremely bullish outlook by various analysts, the prices may surge further in coming weeks amid the ongoing imbalance between supply and demand.

Analysts’ outlook

Just three days into the new month of March, the commodity has already surged by close to 20%. Indeed, it is in good shape for a another weekly gain; having been in the green for 10 out of the past 12 weeks. Based on analysts’ extremely bullish outlook,  crude oil price is expected to rally further in the coming days.

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

During an interview on CNBC Television on Wednesday, Amrita Sen – Director of Research at Energy Aspects – stated that the prices will likely rise further to and past $150 per barrel. She substantiated her assertion by indicating,

“the only solver right now in this market is demand destruction. Otherwise, just the amount of supplies that could be potentially at risk because of all these banking sanctions …nobody wants to take the risk of transacting with the Russian entity if you know those sanctions will be coming.”

Goldman Sachs holds an equally bullish position on crude oil price and commodities in general. In particular, it is bullish on the commodities that Russia accounts for a significant portion of the global production. For instance, it has adjusted its one-month forecast for Brent oil from $95 to $115 per barrel.

In a note sent to its clients late last week, the investment bank stated,

“Barring a breakthrough in peace negotiations, we believe this leaves commodity prices having to rally sharply as we see demand destruction as now the only significant remaining balancing mechanism.”

As noted, both of the aforementioned entities are of the opinion that demand destruction is the only solution to the soaring crude oil price. For that to happen, there would need to be a recession.