How high can oil prices go? Here’s how it arrives at $185.

Oil is already expensive, it could become even more expensive.

Spencer Platt/Getty Images

Text size

Oil at $100 once seemed like a pipe dream. Now that oil is above $110 everyone is wondering how far it will go. JPMorgan strategists now say $185 isn’t out of the question.

Only two years ago, oil was trading at a negative value as demand was crushed by the pandemic. But the Covid-19 recovery has changed that dynamic and now there is less supply than demand.

Russia is the world’s third largest oil producer, and although no sanctions have been imposed on its oil or gas, it seems that people avoid it anyway. JPMorgan strategist Natasha Kaneva notes that about 70% of Russian oil does not find a buyer. “While the United States and its allies have so far refrained from imposing sanctions directly on Russian oil and gas, it became increasingly clear on Tuesday that Russian oil is being ostracized,” she wrote. .

This is a problem, which is likely to send oil prices much higher. Brent crude, the European benchmark, is already trading at $113.18, up 76% over the past 52 weeks, and as long as demand remains high there is little chance that supply can meet to this demand this year, especially with the shortage workers and other constraints. “Essentially, if the disruption in Russian volumes were to last all year, the price of Brent oil could exit the year at $185/bbl,” Kaneva writes.

Oil stocks have already benefited from higher oil prices:

Energy Select Sector

r The SPDR exchange-traded fund (XLE) has gained 32% this year, even as the


fell 8.2% and the

Dow Jones Industrial Average

fell 6.8%.

If there’s a silver lining, it’s because the high price will lead to lower demand and eventually lower oil prices, Kaneva writes.

It may take some time for this to happen.

Write to Ben Levisohn at

Source link

Felix J. Dixon