Now that oil prices are trading near $110 per barrel, many believe that it’s inevitable that we’ll see a new record sometime soon. Many Wall Street banks are now predicting that oil will cross $125 per barrel in the coming weeks. However, one big Wall Street bank just made a staggering forecast, warning that oil could shoot up to $185/barrel before the end of this year.
JPMorgan wrote that it could see prices skyrocketing to $185 thanks to these current self-imposed sanctions against the country. So far this week, we have seen countless refiners, traders, and companies refrain from purchasing Russian oil and gas.
While there’s no official law or decree forbidding private companies from buying Russian commodities, many companies have chosen to do so on their own. The Biden administration might impose full-blown sanctions on Russian oil, depending on how the conflict unfolds, although most experts think this is unlikely to happen.
This includes oil expert Daniel Turner, who warned on Wednesday that oil hitting $150 seems all but certain right now. He added that full-blown sanctions could easily push prices well into $200 per barrel and that these high prices are devastating to our economy.
Overall, these self sanctioning effects have reduced Russian crude oil exports by over 2.5 million barrels per day. In turn, this has led to Russian oil prices plummeting due to a lack of demand and building supplies. Urals crude is trading at roughly $20 lower than Brent is right now.
“As sanctions have widened and the shift to energy security takes on an urgent priority, there will likely be ramifications for Russian oil sales into Europe and the US, potentially impacting up to 4.3 million barrels per day,” wrote analysts at JP Morgan. Around 66% of Russian oil is struggling to find any buyers.
The downside is that this lack of Russian oil comes at a time when America was already running out of its own supplies. The government has already tapped into its strategic reserves in an effort to lower gas and oil prices, which have largely failed. Now governments are planning to release another 30 million barrels, although this will only last for a couple of weeks, at best. Another source of oil, the Saudis, have struggled to raise production back to pre-pandemic levels and are now suspected of being unable to return to those levels anytime soon.
The end result of this is that energy costs are going to further push up inflation. If you look at the consumer-price index, a large portion of inflation metrics are based on energy commodity costs. Now that oil and gas are higher than ever, that’s going to drive up already decade-high inflation numbers.
Western governments are considering lifting all Iranian sanctions on oil exports as a means of restoring balance to the energy markets. A similar agreement was made in the years before 2016, where Iran’s nuclear program was put on hold in exchange for sanctions to be lifted. While that might be one potential solution, it’s unlikely to fully account for the loss of Russian oil that these self-imposed sanctions have produced.
