International oil prices could reach a “stratospheric” $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts, JPMorgan Chase & Co. analysts warned.
The Group of 7 nations are hammering out a complicated mechanism to cap the price fetched by Russian oil in a bid to tighten the screws on Vladimir Putin’s war machine in Ukraine.
“But given Moscow’s robust fiscal position, the nation can afford to slash daily crude production by 5 million barrels without excessively damaging the economy,” the report said quoting JPMorgan analysts’ note to clients on the likely scenario.
International Oil prices up 3% on supply outages
The report indicated that the development could have severe implications for the world, as a 3 million-barrel cut to daily supplies would push benchmark London crude prices to $190.
In the worst-case scenario of a 5-million barrel cut, crude could reach “stratospheric” $380, the analysts wrote to its clients.
“The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports,” the analysts wrote.
“It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia’s side.”
On Friday (1 July), oil prices rose by around 3%. This recovered most of the value lost in the previous session, as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could lead to lower demand.
Current Crude Oil Price