KUALA LUMPUR – The continuous upward trend of oil prices will only cause demand destruction, said Moody’s Analytics.
Chief APAC economist for Moody’s Analytics, Steve Cochrane, added that the demand destruction may drive investments to alternative energy sources.
Demand destruction is a permanent loss of demands towards the commodities caused by long term high prices or even limited supply.
Cochrane said that the increase of global crude oil prices currently is due to high risk premium caused by inconsistent supplies.
Risk premium is the expected return that the investment asset is to yield. Investors need the compensation for high-risk investments.
“Currently, oil supply isn’t disrupted. The sanctions doesn’t include the Russian banks that manages transactions for the country’s energy industry.
“We believe that if the crisis doesn’t further escalate, sanctions wouldn’t affect those banks,” Cochrane told Bernama.
He added that if both sides could reach a resolution within the coming weeks, the risk premium for oil supplies would reduce.
“Oil prices should return to the level it was before the invasion.
“In this scenario, the hike in oil prices wouldn’t last long enough to cause demand destruction. Any inflation would also be only be short to mid-term,” he explained.
Cochrane said that Brent crude prices are expected to reach an average of US$92 per barrel in the Q2 2022. This is caused by uncertainties in the energy sector.
Recently, reports said that US and Europe are looking into banning Russia oil imports due to the prolonged Ukraine crisis.
At the time of writing, oil prices have pare down gains with Brent crude standing at US$128.20 per barrel, while West Texas Intermediate was at US$124.20 per barrel.
Crude oil price (dated Brent) surpassed US$100 per barrel in February 2022. It reached a high of US$124 per barrel recently to average US$93 per barrel year-to date.
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