Oil prices could jump to an all-time high of $200 per barrel by the end of this year, as oil producers ranging from African members of OPEC+ to the U.S. shale patch will struggle to replace the Russian crude that is going off the market, popular hedge-fund manager Pierre Andurand told the latest episode of Bloomberg's Odd Lots podcast.
Andurand, CIO at Andurand Capital, believes that around 4 million barrels per day (bpd) of Russian oil supply is already out of trade on the market after the financial sanctions against Russia over its invasion of Ukraine and after many Western majors and traders refuse to deal with Russia's oil.
Even if Russia and Ukraine reach a ceasefire right now, Russian oil will not return, said Andurand.
"I don't think that suddenly they stop fighting, the oil comes back. It's not going to be the case. The oil's going to be gone for good," Andurand told the Odd Lots podcast.
"We'll have to live with higher prices to keep demand down, for it to be treated a bit more as a luxury product and also to accelerate the energy transition," said the hedge fund manager.
According to Andurand, the actual demand destruction would begin at $200 a barrel oil.
"I feel like there's no demand destruction at $110 a barrel and we'll have to go significantly higher before demand can go down by enough. But that's also assuming there's no government mandate and some kind of confinement, where let's say two days a month, we are not doing anything," he said.
Just after Russia invaded Ukraine, Andurand warned that the oil markets were worse off than many traders believe, The Wall Street Journal reported.
In the first week of March, options traders significantly increased bets that oil could hit $200 as early as this month. Traders would profit from those call options if oil prices were to rally to those levels.
By Tsvetana Paraskova for Oilprice.com
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Comments
Pierre Andurand’s projection that oil could jump to $200 a barrel by the end of the year could only happen if Russia halted all its oil and gas exports to the world with the exception of China. This is so because no one single producer in the world or even a group of producers could replace 8.0 million barrels a day (mbd) of Russian oil exports (5 mbd of crude and 3 mbd of products) now or in the next ten years.
But he seems to have fallen into the same trap of believing an unsubstantiated claim about consumers shunning Russian oil, treat it as a fact and then come up with his own claim that around 4 .0 mbd of Russian oil exports are already out of trade on the market.
If this is true in a global oil market with a shrinking global oil spare production capacity, tight market and a steep decline in global oil inventories, crude oil prices would have skyrocketed so as to plunge the world in a very destructive oil crisis.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Now Russia only supplies 15% of China's crude import and 10% of India's crude import, and this 2 mbd already accounts for 40% of Russia's total crude export. We know that neither China nor India is going to ban or reduce Russian oil, which means that even in the extreme case where everyone else in the world bans Russian crude, only 3 mbd Russian oil export will have no buyer.
China and India together import 15mbd crude, and currently, 13 mbd of that is not from Russia, but this will change soon: Russia crude is now trading at a huge discount and there is nothing stopping China and India from importing more crude from Russia and less from other OPEC+ countries since Russian oil is so under-priced now. China and India can easily absorb the 3 mbd underpriced from Russia and release 3mbd normal-priced oil contracts to the West.
And Russia can still profit from it (their crude cost is around $20/barrel so they can afford to sell their oil at any price higher than that) And the west will feel quite foolish since they can only sit and watch China and India buying all this super discounted crude from Russia.
Now Russia only supplies 15% of China's crude import and 10% of India's crude import, and this 2 mbd already accounts for 40% of Russia's total crude export. We know that neither China nor India is going to ban or reduce Russian oil, which means that even in the extreme case where everyone else in the world bans Russian crude, only 3 mbd Russian oil export will have no buyer.
China and India together import 15mbd crude, and currently, 13 mbd of that is not from Russia, but this will change soon: Russia crude is now trading at a huge discount and there is nothing stopping China and India from importing more crude from Russia and less from other OPEC+ countries since Russian oil is so under-priced now. China and India can easily absorb the 3 mbd underpriced from Russia and release 3mbd normal-priced oil contracts to the West.
And Russia can still profit from it (their crude cost is around $20/barrel so they can afford to sell their oil at any price higher than that) And the west will feel quite foolish since they can only sit and watch China and India buying all this super discounted crude from Russia.