Yesterday, the Financial Times reported that US crude oil was trading around $116 a barrel on Monday, while the Brent international benchmark hit a high of $139 before sliding back to $120. Oil is at its highest since 2014 and natural gas opened at $5.041 per million BTU before settling back to $4.790, another high.
Oil is expected to top $150 as Biden’s restrictions on US energy production and the crisis in Ukraine continue to roil energy markets.
“Ultimately, what we’re seeing is a repricing of oil,” says Christyan Malek, a managing director at JPMorgan. His bank, which two years ago predicted a new supercycle for the commodity, says crude could hit $150 by 2023. But the Russia crisis could yet bring a “massive overshoot”, Malek says according to the Financial Times.
Reports last week indicated that self-sanctioning reduced Russian crude oil exports by ~2.5mb/d; were the restrictions to persist, JPMorgan estimates oil prices would rise to $185 by year end. That was after Morgan Stanley wrote Tuesday that a geopolitical risk premium should be tacked onto current prices and called for $125 Brent in the bank's "bull case."
However, that’s not the highest predicted price. Famed oil trader Pierre Andurand recently tweeted that all-time high oil prices from 2008 would equate to ~$222/b today, when adjusted for inflation.
CNBC reminded its readers that Russia is one of the world’s largest oil-and-gas producers, with a capacity of about 11.2 million barrels per day, said Nishant Bhushan, senior oil market analyst for Rystad Energy.
However, alternative sources are unlikely to fill the gap. The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, has struggled to deliver monthly pledges to increase output by 400,000 barrels per day (bpd) until March.
“One of the very few definitive things we can see from this crisis is that energy prices are going higher,” said Bastien Drut, chief thematic macro strategist at CPR Asset Management, in the Financial Times report. “Even if there is no further escalation in Ukraine, the main consequence is still going to be higher inflation.”
For anyone keeping track these highs were measured against the top prices seen the last time Joe Biden and his team of Obama administration retreads were in the White House.
The market fears that the crisis could take additional turns for the worse and disrupt Russian energy exports further, either with Western sanctions against Russian oil and gas supply, or with Moscow weaponizing its oil and gas exports. Russia’s oil and gas supply to the global market cannot be replaced quickly, analysts and industry officials say.
And, it looks increasingly unlikely that OPEC will change its strategy now that oil prices hit $100, with several of the cartel’s members claiming they don’t see the need to boosting production, wrote Irina Slav of OilPrice.com.
Ms. Slav reported some analysts forecast even higher prices, up to $150 per barrel of Brent crude.
In December 2021, around 53% of the total price of regular gasoline was the price of crude oil. In the first week of February 2022, the average price of a gallon of regular gasoline was $3.44 (slightly up from $3.39 since late January). But with crude oil going up past $100 per barrel the price at the pump now averages over $4.00 a gallon and could quickly pass $5.00 per gallon.
And the practical effect of this could get “rather ugly” according to GasBuddy.com.
According to AAA, the national average as of Sunday stood $4.009 per gallon of regular. This compares with $3.922 per gallon a day earlier and $3.604 per gallon a week earlier. A month ago, a gallon of regular cost $3.439 on average.
CNBC noted in a report on gas price movements that this is the highest since 2008 and cited Andrew Lipow from Lipow and Associates as saying prices had higher to go.
“Oil buyers are reducing their purchases of refined products from Russia, causing Russian refineries to shut down,” Lipow told CNBC. “Dockworkers are refusing to unload vessels carrying oil and gas. Insurance rates are skyrocketing, causing vessel owners to cancel ship bookings loading in Russia, and this is also impacting on the ability of Kazakhstan to sell their oil.”
But President Biden has continued to stand in the way of increased American oil production, with White House Press Secretary Jen Psaki saying the Biden administration is going to use this crisis to push Americans into "biofuels" and "electric cars" as an alternative option.
Lobbying the Saudis and doing deals with adversary states like Iran and Venezuela is not an answer to America’s energy needs. You can call Joe Biden at the White House at 202-456-1111 or email him through this link. Tell him thanks to his feckless foreign policy and destruction of America’s energy security America’s working families are suffering. If oil goes from $120 to $150 a barrel Americans will soon be forced to choose between food and fuel.
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