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A Growing Number of Analysts are Forecasting Triple Digit Oil Prices

International oil prices could soar to $150 a barrel during the first quarter of 2022 if an ongoing conflict between Russia and Ukraine causes supply problems. Respected analysts and economists are reworking their forecasts and building in the “what-if” scenario, related to Russia; this has caused even more experts to join Goldman and JP Morgan in calling for over $100 per barrel of oil.

JP Morgan is projecting $125 and as high as $150 according to a research note they released. The projection adds to the already 12% higher price than Brent Crude reached in January. Oil is currently trading near its seven-year highs as demand is running ahead of global production. Brent is trading in the mid-$80s per barrel.

Russia Potential

Sanctions from the West against Russia would reduce supply to Western European nations that rely on the country’s oil and exacerbate supply issues. Since late 2021, Russia is said to have been building up troops and artillery near Ukraine’s border. Russia has repeatedly claimed it’s not planning an invasion of its mineral-rich neighbor.

“The latest geopolitical tensions between Russia and Ukraine raise the risk of a material spike this quarter,” wrote JPMorgan economists Joseph Lupton and Bruce Kasman in their research note. “That this comes on the back of already elevated inflation—running at a multi-decade high last quarter—and a global economy that is being buffeted by yet another wave of the COVID-19 pandemic adds to the near-term fragility of what is otherwise a fundamentally strong recovery.”

If an adverse geopolitical event should unfold between Russia and Ukraine, JP Morgan envisions a “quick” surge in Brent Crude over one to two quarters to $150 a barrel. The projection is based on an estimated “sharp” cut of 2.3 million barrels a day in oil output. This is approximately a 2% drop in total global supply.

Other Forecasts for Higher Oil

Triple-digit oil “is in the works” for the second quarter of 2022, according to Francisco Blanch, head of global commodities at Bank of America, who told this to Bloomberg. His reasoning is demand is recovering in a big way, while OPEC+ supply will start leveling off within the next two months. Blanch noted that it will be only Saudi Arabia and the UAE that can produce incremental barrels to add to the market.

Morgan Stanley is one of the most recent large Wall Street banks to revise its forecast to over $100 per barrel. The company expects oil prices to hit $100 per barrel in the second half of the year. The oil market is headed to a “triple deficit” of low inventories, low spare production capacity, and low investment, Morgan Stanley said in a note carried by Reuters.

Take-Away

The year began with a number of factors driving oil prices higher. These include OPEC+ producers regularly falling short of their targets, increasing demand as travel and commutes have caused gasoline demand to rise, and inventory drawdowns. On top of this, there is the new threat of supply disruptions in Eastern Europe which could reduce available Brent by 2% of global output. Outright sanctions against Russia also create a scenario of reduced supply and strong upward pressure on oil prices.

Paul Hoffman

Managing Editor, Channelchek

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