Analysts on inflation, recession after Russian oil bans
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Analysts warned that the U.S. ban against Russian oil may increase already high oil prices and fuel costs, which could lead to a recession.
Andy Lipow, President of Lipow Oil Associates, stated that Russia could “easily” raise oil prices by refusing supply. Moscow has threatened to cut off gas supply to Europe if Western nations target Russia’s energy sector.
U.S. crude oil traded at $128 per barrel on Tuesday after President Joe Biden declared a ban against Russian fossil imports. Brent, however, rose above $130 prior to paring gains. U.K., European Union and others also stated they would. phase out Russian fossil fuels. The prices had risen to new highs in the last weeks.
His greatest fear was that the prices of consumer goods have increased so quickly that it causes a recession in Europe or Latin America. That rolls onto the United States and ultimately, China’s ability sale consumer goods to other countries,” he said to CNBC’s SquawkBox Asian on Wednesday.
Goldman Sachs data shows that Russia accounts for 11%, 17%, and 40% respectively of world oil consumption.
A complete ban on Russian imports into all the major consuming countries in the worst-case scenario would “severely decrease and disrupt energy supply,” said Caroline Bain chief commodities economist at Capital Economics.
“Inflation in advanced economies would end the year at around 5% as opposed to the 2.4% we forecast prior to the invasion, and the effects of the drop in households’ spending power and power rationing in Europe would push the euro-zone into recession,” Bain wrote in a Monday note.
‘Global pariah’
According to Jan Hatzius (Goldman Sachs Chief Economist), although it could theoretically be possible for oil flows to be adjusted to reduce the West’s tight supply, this might not actually work in practice.
In a March 6 letter, he stated that “if Western countries purchase less Russian oil then China and India could in principle, buy more Russian and correspondingly, less Saudi and other oils which can then flow into the West.”
Hatzius said that this “rearrangement” of deck chairs is not perfect due to increased transportation costs, but also because China or India might be reluctant increase imports and corresponding payment sharply in a moment when Russia is becoming an international pariah.”
These concerns are evident in the fact that oil prices rose by over $20 per barrel, and Goldman believes there is potential to make further gains. Hatzius stated that an “enduring $20 shock” to oil prices would result in a 0.6% drop in real GDP in the Euro zone and a rise in living expenses for consumers.
Matt Smith from Kpler was the lead oil analyst and said Wednesday to CNBC, “self sanctions” will only increase pressure on energy markets.
He stated that “before even the sanctions were made, I think that there would have been a lot more U.S. corporations already refusing to buy Russian crude oil products.” Shell’s example was cited by him, who was “absolutely lambasted.” buying Russian oil at discounted rates.Later, it apologized and stated that it would. stop all purchases of Russian oil and gas.
Self-sanction is really starting to kick in, Smith said. Smith explained that the purchasing is actually being halted. Smith stated that self-sanctioning has as many impacts as sanctions.
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