Global benchmarks Brent and U.S. crude futures have surged more than 15 percent to 10- and 14-year highs, respectively, since Russia invaded neighboring Ukraine last week. The benchmark settled at $110.46 and $107.67 a barrel on Thursday.
While global powers have issued a raft of sanctions that have so far not targeted Russia’s oil and gas exports, companies are shunning Russian oil — tightening a demand that has struggled to keep up with a rebound to roughly pre-pandemic levels. ‘s market.
In recent days, Wall Street strategists have been raising their expectations that the peak in the crude benchmark price will have to widen to eventually lead businesses and consumers to spend less.
On Thursday, JPMorgan analysts said Brent must rise to $120 a barrel “and stay there for months to stimulate demand destruction.”
What’s more, the bank said that if disruptions to Russian crude production persist throughout the year, Brent could hit $185 a barrel by the end of 2022, which could lead to a drop in demand of around 3 million barrels per day (bpd).
“At these price levels, it will impact demand, but it will take time, and we’ve come to this stage with a tight crude oil market — there’s not a lot of slack in the system,” said author and author of S&P Global Vice Chair Daniel Yergin said.
Global consumers have been trying to ensure ample oil supplies after sanctions were imposed on Russia, which exports 4 million to 5 million barrels of crude a day, the second-largest in the world after Saudi Arabia. On Tuesday, the International Energy Agency said it would release 60 million barrels of oil from emergency reserves.
Markets shrugged off the news, which was less than a day’s worth of global consumption, and oil prices continued to rise after the news.
“In the face of such a potentially large and immediate supply shock, supply elasticity no longer matters,” Goldman Sachs said in a note on Tuesday.
So far, there has been little evidence of demand destruction in the United States, the world’s largest oil consumer. When gasoline hits $4 a gallon, drivers tend to worry about filling up their cars. The current national average price is $3.73 a gallon, according to the AAA.
“I do think that when we see $4 a gallon, there could be an adverse reaction,” said Patrick De Haan, director of petroleum analysis at GasBuddy. “But because the economy is strong and prices are still well below economic Inflation-adjusted records, it doesn’t have the same sting.”
Adjusted for inflation, the $4 a gallon price reached in 2008 is equivalent to about $5.20 in today’s dollars, said Mike Tran, a senior analyst at RBC.
“The next frontier for oil prices will be defined by prices seeking to disrupt demand, a bullish framework,” Tran said in a note Wednesday.