Brent may be range-bound in immediate term: Emkay Wealth

Brent is currently trading at $79 per barrel, and there are indications that it might exhibit a range-bound pattern in the near future with a downward inclination, Emkay Wealth Management, the wealth management and advisory arm of Emkay Global Financial Services said in a note on Friday. 

In its previous update, it highlighted two conflicting factors influencing the trajectory of oil prices. One perspective revolves around the concept of demand destruction, while the other emphasises the anticipated demand growth from countries such as India and China over the long term.

“Upon closer examination, it appears that the immediate and short-term dynamics may be influenced by demand destruction, whereas the sustained, long-term growth in demand is expected to stem from the economic engines of India and China,” the note stated. 

Explaining the demand destruction, the note stated that primarily erosion in demand is happening from the widespread occurrence of high inflation across countries, with fuel prices being a major driver of this inflationary trend. “In support of this perspective, observations have been made regarding a substantial decline in fuel consumption in the United States during the recent holiday season,” the note said. According to the note, this notable reduction is believed to be a consequence of consumers exercising restraint in response to the elevated prices. 

The International Energy Agency (IEA) underscores this point in its report, stating that there is emerging evidence of demand destruction, citing preliminary September data that indicates a significant drop in US gasoline consumption to levels not witnessed in two decades.