Oil Prices Could Hit $240 This Summer

Oil prices could hit $240 per barrel this summer in the worst-case scenario if Western countries roll out sanctions on Russia’s oil exports en masse.

That’s according to Rystad Energy’s head of oil markets, Bjørnar Tonhaugen, who made the statement in an extraordinary market note sent to Rigzone on Wednesday.

“Market volatility is at an all-time high, with prices surging on the expectation that supply will further tighten due to restrictive sanctions on Russian energy from the West,” Tonhaugen said in the statement.

“Although fortunately not the most likely scenario, traders, analysts and decision-makers alike should prepare for elevated prices based on the current landscape,” he added in the statement.

“This is the largest energy crisis in decades and the impact on the world’s most important commodity is going to be unprecedented,” Tonhaugen continued.

In the note, the Rystad head outlined that if more Western countries join the U.S. and impose oil embargoes on Russia, it would create a 4.3 million barrel per day hole in the market “that simply cannot be quickly replaced by other sources of supply”.

“Oil prices must therefore rise to destroy sufficient demand and incentivize a supply response through higher activity – both of which happen with a time lag of several months – to rebalance the market at a higher supply/demand/price intersection,” Tonhaugen said in the note.

“If 4.3 million barrels per day of Russian oil exports to the West are halted by April 2022, and where China and India only keep current import levels intact, Brent would need to spike to $240 per barrel by the summer of 2022 to destroy demand,” Tonhaugen added.

Oil at $240 per barrel would curb international market demand sufficiently over the coming six months through both a direct price impact and an indirect GDP impact, the Rystad head noted.

“The higher prices go, the larger the chances of the global economy entering a recession already in the fourth quarter of 2022,” Tonhaugen said.

“Oil at $240 per barrel would trigger a global recession and self-destruct the price level within just a few months, after which prices would fall sharply,” he added.

“In the worst potential crisis for the oil market since the 1990 Kuwait invasion by Iraq, prices may again need to double in the coming months if all western exports of Russian-associated crude is either embargoed, shunned or by other means needs to be replaced,” Tonhaugen continued.

Citing an address on Russian state television, CNBC reported Wednesday that Russian Deputy Prime Minister Alexander Novak warned of $300+ oil if Russian oil is rejected.

In a statement sent to Rigzone on Monday, data analytics company Enverus noted that if proposed bans on oil imports from Russia in the U.S. and Europe come to fruition, $150 per barrel is not out of the question.

In a briefing note sent to Rigzone last Friday, Goldman Sachs outlined that if traders continue to resist buying Russian oil, or if energy sanctions materialize, crude prices could increase to as much as $150 per barrel in the coming months.

At the time of writing, the price of Brent crude oil stood at $116.7 per barrel. On March 10, 2021, the Brent price stood at $67.9 per barrel.

To contact the author, email andreas.exarheas@rigzone.com