A barrel of oil might “easily” reach $120 if the Russia-Ukraine crisis escalates, JPMorgan warns
The Russian oil platform LSP-1, in the Caspian Sea, in this file image. (Credit: MIKHAIL MORDASOV/AFP via Getty Images)
The price of a barrel of oil might soar to $120 if Russia’s crude exports are hit by tensions with Ukraine, according to JPMorgan projections.
The forecast underscores how a potential invasion of Ukraine would cause wide-ranging effects that would be felt by consumers Tired of inflation around the world.
“Any disruption to oil flows from Russia, once morest a backdrop of low spare capacity in other regions, might easily drive oil prices to $120,” wrote Natasha Kaneva, head of global commodity strategy at JPMorgan. , in the report released late Tuesday.
This rise, from the current US$91, would push up prices at gas stations, which hit a new seven-year high on Wednesday.
JPMorgan has warned that if Russian oil exports are cut in half, Brent oil prices might hit $150 a barrel. The all-time high for oil prices was set in July 2008, when Brent reached a high of $147.50 a barrel.
How Oil Supply Could Be Threatened
Tensions between Russia and Ukraine have contributed to inflating oil prices in recent weeks. On Monday, Brent crude hit a new seven-year high of $94 a barrel, though it has since retreated to around $91.
Russia is the world’s second largest producer of oil and natural gas, surpassed only by the United States in each category. The country plays a key role in OPEC+, the group of producers that has been gradually recovering production set aside during the onset of covid-19.
The crisis between Russia and Ukraine poses several risks for the oil market. First, there is the possibility that the region’s energy infrastructure might be damaged in a conflict.
Second, Western powers might try to punish Russia by imposing sanctions that cripple the country’s energy exports, although US officials have signaled that they prefer to penalize other sectors of the economy first.
And then there is the risk that Russian President Vladimir Putin will retaliate by arming oil and natural gas exports. Rising natural gas prices in Europe would increase demand for oil, as factories and power plants would use it instead.
Pump prices at seven-year highs
Oil prices have cooled somewhat in recent days on hopes that tensions between Russia and Ukraine will ease and signs that progress is being made on a new nuclear deal with Iran.
Gasoline prices, which lag behind oil, continue to catch up with the recent rise in crude oil.
The national average for gasoline hit $3.47 a gallon on Wednesday, up 7 cents in the last week alone, according to AAA.
Despite the standoff between Russia and Ukraine, the Energy Department expects energy prices to cool later this year, when supply finally meets demand.
The US Energy Information Administration (EIA) forecasts gasoline prices to average $3.24 per gallon this year. This figure is lower than current levels, although it is above the December EIA forecast of $2.88 per gallon in 2022.
The EIA expects pump prices to fall below $3 a gallon in the last quarter of this year and Brent crude to fall to an average of $68 a barrel for all of 2023.
Russia is also the top producer of natural gas, and its biggest customer is Europe, which is already grappling with soaring home heating costs.
“An export disruption on any of the major pipelines might put Europe’s natural gas balance in a precarious position, especially given that 2022 started with minimal European gas inventories,” JPMorgan warned.
