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How high will oil prices go?

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Posted: Tuesday, March 8, 2022. 10:43 am CST.

By Aaron Humes: CNN reports that on Monday, oil prices have risen to their highest levels since 2008 – and may go even higher.

As a result of the Russian invasion of Ukraine and Western nations considering an embargo on crude exports from Russia, the world’s second-largest exporter, U.S. crude futures traded at $123 per barrel and Brent crude at $125 after going as high as $139 (all prices U.S. dollars).

Analysts and traders think the recent rally could be just the beginning, as warnings of $200 crude start to trickle through the market.

“We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil while making sure that there is still an appropriate supply of oil on world markets,” US Secretary of State Antony Blinken told CNN’s Jake Tapper on Sunday.

For many in the West, there’s already a de facto ban on Russian oil. Shippers, insurance companies, and banks have decided they don’t want to risk running afoul of sanctions or deal with the logistical problems of picking up Russian cargoes and have been looking for supply elsewhere. (Shell recently bought Russian oil to fulfill orders placed before the invasion, but said it would donate the profits to help “the people of Ukraine.”) But because a formal embargo would be more concrete, investors are spooked.

Russia exports about 4 million barrels of crude per day to the West — mostly to Europe. Some of that supply could go to China or India, but it’s not clear how much, Tonhaugen said. Russia’s total oil exports stood at about 7.8 million barrels per day in December.

Members of the Organization of the Petroleum Exporting Countries, including Saudi Arabia and the United Arab Emirates, could step in, but they signaled last week that they don’t plan to get involved for now. Talks on a nuclear deal with Tehran that could unblock some Iranian oil exports hit a snag over the weekend.

How high can oil go? JPMorgan’s strategists said last week that if disruptions to Russian oil last “throughout the year,” prices could rise to $185 per barrel.

The price of an option to buy Brent crude at $200 a barrel more than doubled on Monday, according to ICE Futures Europe data, indicating growing fear that prices could break new ground. Brent’s highest-ever price was $147.50 in July 2008.

Rapid gains in energy prices will have major ramifications for the economy since they will cause consumers to pare back spending in other areas. The average price for a gallon of regular gas hit $4 in the United States over the weekend, also a high since 2008.

Not just oil: The prices of other commodities, including wheat, copper, aluminum and palladium, have jumped, too. The Bloomberg Commodity Index increased 13 percent last week, its biggest gain on record.

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