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Market Extra: Could oil hit $300 a barrel? Why Russia’s deputy prime minister seems to think so

The price of oil could climb to $300 a barrel if the world completely shuns crude oil from Russia, the country’s deputy prime minister, Alexander Novak, reportedly said on Monday.

His comments come as the European Union considers a ban on the purchase of Russian oil. Support for an EU ban is growing within the bloc, according to The Wall Street Journal.

“A complete rejection? In the event of a rejection, the oil price would be $300, I’m telling you, some even say $500,” said Novak, according to a report from Russian news agency TASS.

Novak, who was Russia’s minister of energy from 2012 to 2020, also said that he doesn’t believe Europe can fully turn down Russian hydrocarbons because there is nothing to substitute for Russian oil. However, if Russia’s oil was rejected, he said the nation would diversify oil deliveries from the West to the East, creasing new logistics chains, according to TASS.

Novak is likely “attempting to deter new sanctions, as one would expect,” said Michael Lynch, president at Strategic Energy & Economic Research.

“Given that Russian oil is starting to find new buyers already, it would seem unreasonable to assume that the oil would be lost to the market as opposed to seeking new buyers,” he told MarketWatch. “Prices would certainly rise, and $150 would not be out of the question, even if only for a few weeks.”

Peter McNally, vice president and global lead at Third Bridge in New York, said Novak’s comments reminded him of a 2008 report that said Russia’ Gazprom expected the price of oil to almost double to reach $250 a barrel in 2009.

“So, beware Russian energy executives making commodity price forecasts,” said McNally. Oil prices did reach a record intraday high, with Brent prices
BRN00,
+0.57%

above $147 in 2008.

On Monday, the front-month May Brent contract
BRNK22,
+0.57%

settled at $115.62 a barrel, and April West Texas Intermediate
CL.1,
+7.27%

CLJ22,
+7.27%

ended at $112.12, with both marking the highest settlements since March 8, when prices finished at their highest since 2008.

“That said, inventories of crude oil are very low by historical standards, so any disruption to global supply will have a material impact on prices,” McNally told MarketWatch. 

“From the start of December 2021 to early March 2022, Brent crude prices basically doubled,” McNally said. “Could they double again? If there was a material cut to supply and this inventory, it is possible but that does not mean that the oil price would be sustained at $300 or pick whatever your price is.

“In the short term, oil demand is price inelastic,” he said. “We have seen little impact on demand…from this most recent price move” so far.

In 2021, Russia produced 10.1 million barrels per day of crude oil and condensate and exported 4.7 million barrels per day of that, according to the U.S. Energy Information Administration.

McNally stressed that he would not predict if the world is going to lose that roughly 5 million barrels per day of export capacity from Russia.

However, if the world were to lose that roughly 5 million barrels per day, Third Bridge thinks that some of that could be replaced by oil from Saudi Arabia — for a potential amount of about 2 million barrels per day, the U.S. for around 1.5 million bpd, Iran for 700,000 bpd, the United Arab Emirates for 300,000 to 500,000 bpd and Kuwait for 100,000 bpd, McNally said. “These numbers are subject to change but keep in mind that the rally in oil at the start of this year came from threats in Kazakhstan and the U.A.E.,” he added.

If a $300 oil price was sustained, which is unlikely given the impact on demand, there is “capacity to add supply over time,” McNallysaid. “The quickest responses could come from Saudi Arabia, the U.A.E., and the U.S., but there are complicating factors everywhere to tap that capacity.”

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