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Analysis-Want lower oil prices? First you need higher ones -Breaking


© Reuters. FILE PHOTO – Models of oil barrels, a pump jack and an illustration of rising stock are shown in front of “$100” and a rising stock chart in this illustration from February 24, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Stephanie Kelly

NEW YORK (Reuters), – Oil prices can only fall if they continue to rise. This is what Wall Street analysts are stating, which is a growing consensus. They believe there isn’t enough oil supply to stop crude prices from continuing their upward spiral.

Since Russia invaded Ukraine, global benchmarks and futures rose by more than 15%, to near 10-year and 14-year highs respectively. [O/R]

Although global powers have imposed a series of sanctions to stop Russian oil exports from being targeted, Russian companies have begun to avoid Russian oil. This tightens a market already in trouble and has nearly recovered to its pre-pandemic level of demand.

Wall Street strategists are putting forth higher expectations about the rise in crude oil prices, which will eventually lead to consumers and businesses cutting down on consumption.

JP Morgan analyst said that Brent should rise to $120/barrel “and remain there for months in an effort to incentivize destruction of demand.”

The bank also stated that if Russian volume disruption continues throughout the year Brent may end up at $185 per barrel in 2022. This would likely cause Brent demand to drop by approximately 3 million barrels per daily (bpd).

Following the Russian sanctions, global consuming countries have attempted to secure adequate oil supplies. Russia exports between 4 and 5 million barrels per day of crude oil, ranking second behind Saudi Arabia. The International Energy Agency announced Tuesday that it will release 60 million barrels from its emergency reserves.

The news was ignored by the market, which saw the global release amount to less than one day’s consumption. Oil prices continued their rise after the announcement.

It happened again on Thursday. Talks that Iran and the United States were closing in on an amended nuclear agreement that would add another million barrels per day to their daily supply led to a selloff.

Goldman Sachs (NYSE 🙂 said Tuesday, “Supply Elasticity is not relevant in the face such a potential large-and immediate supply shock,” in a note.

As the biggest oil consumer in the world, the United States has so far not seen any signs of demand loss. When gasoline prices reach $4 per gallon motorists become more wary of filling up their cars. According to the American Automobile Association, current average national gasoline price is $3.73 per gallon.

Patrick De Haan of GasBuddy’s petroleum analysis said, “I believe that when we see $4/gallon, there might be an adverse response.” It doesn’t seem as stingy with an economy that is strong and inflation-adjusted prices.

Mike Tran, RBC senior analyst, stated that after adjusting for inflation the price of $4 per gallon in 2008 would equal about $5.20 today.

Tran wrote Wednesday that “the next frontier of oil price will be defined prices in search demand destruction”

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