A sharp slowdown in global oil demand is being driven less by high prices and more by supply constraints, pointing to what JP Morgan describes as a “forced demand loss” rather than conventional demand destruction.
In a recent report, the bank said global oil supply disruptions rose sharply to 9.1 million barrels per day (mbd) in March and further widened to 13.7 mbd in April, following interruptions linked in part to the Strait of Hormuz. However, the usual market mechanisms that typically cushion such shocks have struggled to respond.
“This suggests that much of the decline is not traditional, price-driven ‘demand destruction’ but rather forced demand loss caused by missing supply,” the report noted. “Put differently, physical shortages are constraining actual consumption, so what appears to be demand destruction is a supply loss showing up on the demand side of the ledger.”
According to JP Morgan, the limited availability of spare production capacity—concentrated mainly in Saudi Arabia and the UAE—has restricted the industry’s ability to offset the shortfall. In the United States, shale producers are expected to add only 0.3–0.7 mbd within three to six months, with larger gains of up to 1 mbd requiring as long as a year. Russia’s spare capacity is also constrained, estimated at around 300,000 barrels per day, while output has already fallen by about 350,000 barrels due to infrastructure issues.
With supply-side adjustments lagging, markets have leaned heavily on inventories. Global oil stocks fell by 4.0 mbd in March and a steep 7.1 mbd in April, reflecting aggressive drawdowns of reserves. Even so, the supply gap has persisted.
As a result, reported global oil demand has weakened significantly, dropping by 2.8 mbd in March and on track for a deeper decline of around 4.3 mbd in April. Notably, this downturn has occurred despite relatively high price levels, with Brent crude averaging just under $100 per barrel over March and April, and dated crude trading between $107 and $123 per barrel.
JP Morgan argues this disconnect underscores the nature of the current downturn: demand is not collapsing because of price pressure, but because physical shortages are limiting actual consumption.
The impact has been most pronounced in the Middle East, Asia, and parts of Africa—regions that together account for roughly 87% of the decline in April and are heavily reliant on Gulf supply chains.
Key industrial sectors have also felt the strain. Petrochemicals and aviation have been among the hardest hit, with feedstock shortages—particularly LPG, ethane, and naphtha—forcing production cuts across Asian facilities. In India, LPG consumption reportedly fell 13% year-on-year in March, reflecting broader stress on fuel availability.
Despite inventory drawdowns and falling demand, JP Morgan estimates that a remaining supply gap of around 2 mbd persists, suggesting further market adjustment may be needed to restore balance.
(With inputs from ANI)
