JP Morgan, Goldman Sach, Morgan Stanley project longer era for oil price if EU bans Russia’s oil
As the European Union prepares to impose a full immediate ban on imports of Russian oil, some of the world’s biggest investment and energy intelligence firms are turning more bullish on oil in the medium to long term as analysts bet crude supplies would not keep pace with fast-rising global demand.
The price of Brent, the benchmark for Nigeria’s crude oil, has surged over the past months amid supply concerns triggered by a tighter supply outlook after sanctions against Russia – the world’s second-largest oil exporter and a key European supplier – over its invasion of Ukraine, which Moscow calls a “special operation”.
This week, the EU announced it has started tentative discussions on potentially imposing an embargo on Russian oil, but the bloc is still split on a ban on Russian energy imports.
French Finance Minister Bruno Le Maire said on Wednesday that an embargo on Russian oil at a European Union level was in the works, adding that France’s President Emmanuel Macron wants such a move.
“I hope that in the weeks to come we will convince our European partners to stop importing Russian oil,” Le Maire told Europe 1 radio.
Brent, the benchmark for Nigeria’s crude oil, rose $1.46 to $108.71 a barrel by 1 pm Nigerian Time.
Even after the latest rally, prices still have headroom to rise further, many major investment banks believe.
An American multinational investment bank believes if the EU escalates embargoes in the sixth package of sanctions against Russia over its invasion of Ukraine and decides to impose a full immediate embargo on Russian oil, then Brent Crude prices could soar by 65 percent to as much as $185 per barrel.
According to Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan, “a full immediate ban would cut over 4 million barrels per day (bpd) of Russian supply, and China and India wouldn’t be able to absorb all those volumes very soon.”
Still, an immediate EU ban is not JPMorgan’s base-case scenario—the investment bank sees 2.1 million bpd of Russian supply to Europe cut.
If the EU imposes a gradual phase-out ban on Russian oil over several months, as it did with the ban on Russian coal imports, adopted in early April but effective only from August, this would not impact oil prices as much, JPMorgan’s Kaneva says.
Morgan Stanley increased its oil price forecasts, citing a “relentless drawdown in global inventories” and lower output from Russia, projecting Brent crude at $120 per barrel in the third quarter.
“As inventories are already at multi-year lows, we expect this to continue to exert upwards pressure on oil prices if the EU moves ahead with its decision to ban Russia’s oil” it said in a note dated March 16.
The bank raised its Brent price forecasts to $120 and $110 a barrel for the last two quarters of the year respectively, up from the $100 previously estimated for both quarters.
Goldman Sach, an American multinational investment bank and financial services company headquartered in New York City believes oil price will average $135 per barrel this year as the world could face the “largest energy supply shocks ever” with Russian crude struggling to make it to the market.
“In the short term, coping with such a supply shock would require the combined help of global strategic reserves, core-OPEC, Iran, and higher prices to reduce consumption,” Goldman Sachs said.
Rystad Energy, an independent research firm in Norway believes 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.
“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,” said Bjørnar Tonhaugen, Head of Oil Markets, at the Oslo-based consultancy.