Oil surged to $130 a barrel at the start of trade on Monday, and now analysts and industry professionals say that prices could soon break above $150 and even soar to $200 a barrel as the U.S. and Europe are considering a ban on Russian oil.
A stalemate in the negotiations about an Iranian nuclear deal—the only bearish factor for oil now—is also supporting oil prices at the beginning of this week.
Analysts have already warned that even if Iran returned to exporting its oil soon, the volumes would not be nearly enough to fill the gap that Russian exports would leave.
Sanctions on oil from Russia—which exports around 5 million barrels per day (bpd) of crude and 2.8 million bpd of refined products—would have a much more significant effect on market balances than the sanctions on Iran and Venezuela in previous years.
Moreover, a deal on Iran—reportedly "imminent" as of last week—is now muddled with the Russian war in Ukraine. As part of the negotiations for reviving the 2015 agreement, Moscow has reportedly made last-minute demands that the sanctions against Russia over its war in Ukraine do not impede its trade with Iran.
As diplomats scramble to solve this last-minute demand at the final crucial stage of talks, an Iranian deal now looks not as "imminent" as was suggested last week.
As a result, oil is surging. But the price spike had more to do with the potential ban on Russian oil, after comments on Sunday from U.S. Secretary of State Antony Blinken that the United States and its European allies are in "very active discussions" about banning the import of Russian oil.
"We are now in very active discussions with our European partners about banning the import of Russian oil to our countries while, of course, at the same time maintaining a steady global supply of oil," Secretary Blinken told Chuck Todd of NBC News.
A ban on Russian oil would eclipse a return of Iranian oil exports, even if the Islamic Republic were to start oil shipments today. So, analysts are already predicting that $150, and even $200 oil, is coming.
Even without sanctions, oil exports from Russia are already being disrupted as buyers have started to "self-sanction" themselves, as analysts say. An official ban from the West would mean much higher—potentially all-time high—oil prices.
Bank of America says if most of Russia's oil exports were stopped, the market would be in a 5-million-bpd deficit or bigger, which could trigger an oil price move to $200 per barrel.
Scott Sheffield, chief executive at Pioneer Natural Resources, the biggest oil producer in the Permian, says U.S. producers will not be able to replace Russian oil this year. In the event of a Russian embargo—which Sheffield supports—oil could jump to $150 and even $200 per barrel, the executive said in an interview with the Financial Times.
"The only way to stop Putin is to ban oil and gas exports," Sheffield told FT, but noted that "if the western world announced that we're going to ban Russian oil and gas, oil is going to go to $200 a barrel, probably — $150 to $200 easy."
The U.S. shale patch would need several months to raise production sharply, even if it started drilling many new wells now, Pioneer's CEO noted.
Labor, sand and equipment shortages are already expected to constrain growth in U.S. shale this year, Sheffield and other U.S. oil executives said last month.
With international oil prices soaring, U.S. gasoline prices hit the highest since 2008 at above $4 per gallon. On Sunday, the national average for a gallon of regular gasoline was $4.009, per AAA data. That's a massive 40 cents increase from the $3.604/gal average price a week earlier.
At this point, the implied national average is around $4.55/gal, given current oil prices, Patrick De Haan, head of petroleum analysis for fuel-savings app GasBuddy, said on Sunday.
By Tsvetana Paraskova for Oilprice.com
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