Oil jumped to $130 a barrel in early trading on Monday, and now analysts and industry professionals say prices could soon top $150 and even soar to $200 a barrel as the US and Europe consider a ban on Russian oil.
The impasse in Iran nuclear deal talks – the only bearish factor for oil right now – is also supporting oil prices earlier this week.
Analysts have already warned that even if Iran returns to exporting its oil soon, the volumes will not be enough to fill the gap left by Russian exports.
Sanctions on oil from Russia, which exports about 5 million barrels per day of crude oil and 2.8 million barrels per day of oil products, will have a much larger impact on the market balance than sanctions against Iran and Venezuela in previous years.
What’s more, the Iran deal that was reportedly “inevitable” last week is now intermingled with Russia’s war in Ukraine. As part of negotiations to renew the 2015 deal, Moscow reportedly demanded at the last minute that sanctions against Russia over its war in Ukraine should not impede its trade with Iran.
As diplomats struggle to resolve this latest demand in the final pivotal phase of the talks, the Iran deal now looks less “imminent” than last week’s speculation.
On the subject: Can the world economy function without Russian oil?
As a result, oil boils. But the jump in prices had more to do with a potential ban on Russian oil following US Secretary of State Anthony Blinken’s comments Sunday that the United States and its European allies were in “very active negotiations” to ban Russian oil imports.
“Now we are in very active negotiations with our European partners to ban the import of Russian oil into our countries and, of course, at the same time to maintain stable global oil supplies,” Secretary of State Blinken told Chuck Todd in an interview with NBC News.
A ban on Russian oil would dwarf the return of Iranian oil exports, even if the Islamic Republic were to start shipping oil today. So, analysts are already predicting that oil will cost $150 or even $200.
Even without sanctions, oil exports from Russia are already faltering as buyers, analysts say, have begun to “self-sanction.” An official Western ban would mean much higher – potentially record high – oil prices.
Bank of America says that if most of Russia’s oil exports were halted, there would be a market deficit of 5 million barrels per day or more, which could push oil prices up to $200 a barrel.
Scott Sheffield, chief executive of Pioneer Natural Resources, the largest oil producer in the Permian Basin, says US producers will not be able to replace Russian oil this year. In the event of a Russian embargo backed by Sheffield, oil could jump to $150 or even $200 a barrel, he told the Financial Times.
“The only way to stop Putin is to ban oil and gas exports,” Sheffield told the FT, but noted that “if the Western world announces that we are going to ban Russian oil and gas, oil will drop to $200 a barrel.” probably $150 to $200 easily.”
It will take a few months for the US shale play to boost production dramatically, even if a lot of new wells are being drilled now, Pioneer’s CEO said.
Labor, sand and equipment shortages are expected to hold back growth in U.S. shale production this year, Sheffield and other U.S. oil executives said last month.
With global oil prices skyrocketing, U.S. gasoline prices are at their highest level since 2008, above $4 a gallon. On Sunday, a gallon of regular gasoline cost $4,009 nationwide, according to AAA data. This is a significant increase of 40 cents from the average price of $3.604 per gallon a week earlier.
As of right now, the estimated national average is around $4.55 a gallon, given current oil prices, Patrick De Haan, head of oil analysis at fuel-saving app GasBuddy, said on Sunday.
Tsvetana Paraskova for Oilprice.com
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