JPMorgan doesn’t rule out oil prices hitting $380 a barrel if Russia closes its floodgates, Markets News

Last week, the G7 met at a summit and agreed to cap the price of Russian oil to further cut cash flows for Moscow, which is using it to finance its war machine. Since a sudden European embargo would cause a new surge in crude oil prices, the Americans proposed the idea of ​​a complex capping mechanism that, since direct price intervention is not possible, would involve carriers and private insurers. Tankers carrying oil from the Urals will no longer be able to be insured unless they buy Russian oil loaded into the hold at a price below a certain price, which will be slightly above cost. Japanese Prime Minister Fumio Kishida has proposed capping about half the current price, around $50 to $60.

Japan, USA, Canada, UK, Germany, France and Italy are currently considering the implementation of this plan. Today, the European Union, which decided in June on a gradual embargo on Russian oil, still sends hundreds of millions of dollars to Russia every day to buy its oil. The West intends to cut these financial flows without oil prices returning to flirting, as in March, at the start of the war in Ukraine, with their 2008 records of almost $150 per barrel, after the US and US decision, the Kingdom banned the import of Russian oil.

However, the West’s new plan for sanctions against Russia may again turn against them, according to the American bank JPMorgan; it’s a risk “the most obvious and most likely. »

“Stratospheric”

The team of Natasha Kaneva, head of commodity analysis, warns that Russia could respond by cutting production by 5 million barrels per day without any consequences. “excessive damage” on its economy, given its budgetary situation ” solid “. Such a Kremlin response would set off a historic boom in oil prices that could reach “stratospheric” $380 a barrel, according to a bank that doesn’t believe in a global recession.

“Currently, we estimate that oil prices change by about $25 a barrel for every 1 million barrels of change in supply or demand, nearly double the 15 that prevailed prior to Russia’s invasion of Ukraine, and four times more than the $9 observed just before the start. Covid, early 2020.”, we can read in a note sent last week. For example, if Russia were to remove another 3 million barrels per day from the market (just over 3 million are already under sanctions, which is partly offset by increased production of other OPEC+ members), North Sea oil prices would reach $190 per barrel (+ $75 per barrel). compared to the current price) before the race is even bigger, due to the threshold effect, in the case of a worst-case reduction of 5 million barrels.

Russian Deputy Prime Minister Alexander Novak already warned last week that attempts by the G7 (which is also looking for cooperation with China and India) to cap Russian oil prices could unbalance the market and push prices higher.

On Monday, Brent rose 2% to about $114 per barrel (+45% YtD). In Norway, the producer country, a strike by workers in the energy sector is expected to lead to the closure of three new hydrocarbon fields. According to the Norwegian Petroleum Association, this will result in a loss of 130,000 barrels of daily oil production.

“The lack of buffer stocks […], with low stocks compared to pre-pandemic levels […], leaves the market vulnerable to unplanned supply disruptions such as rising protests in Libya or an active Atlantic hurricane season that could potentially shut down refineries in the Gulf of Mexico.”we warned last week at JPMorgan.