- Oil prices are soaring after the US said it’s considering an embargo on Russian oil imports.
- Bank of America said that this could drive crude prices past $200 a barrel – considerably above the previous all-time high of $147.
- The bank added that this could hit economic growth by as much as 2%.
Crude-oil prices have surged past $100 towards $130 a barrel since Russia launched a full-scale invasion of Ukraine last week. But Bank of America strategists warned that Western sanctions could extend the rally and squeeze oil as high as $200.
“If the West cuts off most of Russia’s energy exports, it would be a major shock to global markets,” analysts Ethan S. Harris and Jeseo Park said in a recent research notes.
“We have no confidence in predicting what happens next,” they added. “We are very concerned about… a sharp escalation of the attack with energy sanctions to follow.”
Insider breaks down the bank’s latest oil price forecast.
“We are now in very active discussions with our European partners about banning the import of Russian oil to our country while, of course, at the same time, maintaining a steady global supply of oil,” Blinken told NBC’s “Meet the Press.”
Oil prices soared almost 20% past $130 a barrel on Monday, in response to that statement. Russia is the world’s third-largest oil producer, according to the International Energy Agency, so an import ban would hit supply and push up prices.
That would lead to oil prices rising to $200 a barrel, with the US unable to make up the supply gap, according to Scott Sheffield, CEO of top US shale oil producer Pioneer Natural Resources.
“The only way to stop Putin is to ban oil and gas exports,” Sheffield told the FinancialTimes on Friday. “[But] if the western world announced that we’re going to ban Russian oil and gas, oil is going to go to $200 a barrel, probably.”
Oil price outlook
Bank of America strategists also estimated that an oil import ban could push the crude price to $200 a barrel. Harris and Park said an oil import ban would have far more significant implications for the market than other sanctions imposed by Western nations, such as disconnecting Russian banks from the SWIFT payments system.
“The big missing element in the sanctions thus far is that they have little impact on Russian energy exports,” they said. “The threat of such sanctions has put a risk premium into the oil market, but the rise in energy prices so far is not a “shock” in any meaningful way.”
Russia is the world’s third-largest oil producer, behind the United States and Saudi Arabia, and with around 11 million barrels per day in output, accounts for roughly 10% of total global supply. It exports between 7.5 and 8 million barrels per day, according to the International Energy Agency – two thirds of which is transported by tanker, with the remaining third by pipeline.
“If most of Russia’s oil exports are cut off, there could be a 5 million barrel per day or larger shortfall even if there is some offset from the release of strategic reserves and some increase in OPEC exports,” they added. “Oil prices could double from $100 a barrel to $200 a barrel.”
That would push oil past its previous record price of just under $150 a barrel, which it hit in 2008.
“We want to emphasize that this is a scenario and not a forecast,” Harris and Park said. “However, the outlook is highly uncertain and investors need to consider the range of risks.”
The bank said that skyrocketing crude oil prices could hit global growth by as much as 2%.
“History shows that big shocks can have non-linear effects,” Harris and Park said. “This is particularly the case if there is sticker shock from record-high gasoline prices.”
But the strategists noted that the status of the United States as an energy independent country – meaning it produces as much energy as it consumes – could mitigate the impact of this. US-listed oil stocks Exxon Mobil and Chevron were both up by just under 1% Monday.
Surging crude prices would also drive up inflation, which is already at a 40-year high of 7.5% last month. US gas prices jumped 11% over the last week, according to the American Automobile Association.
“Increasing oil prices continue to play a leading role in pushing prices higher,” the AAA said on Thursday. “Pump prices will likely continue to rise as crude prices continue to climb.”