JPMorgan warns oil prices could surge 240% as Russia slashes output in response to Western sanctions

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OIl refinery
Oil prices have shot up in 2022.zorandimzr/Getty Images
  • Oil prices could surge 240% to $380 a barrel if Russia slashes production in response to a price cap, JPMorgan has warned.

  • The bank said Russia could, in an extreme scenario, cut production by 5 million barrels a day without majorly hurting its economy.

  • The G7 announced last week it was exploring ways to cap Russian oil prices.

Oil prices could surge 240% to $380 a barrel if Russia dramatically slashes production in response to Western plans to cap the country's energy prices, JPMorgan has warned.

G7 leaders last week announced they were working on plans to cap the price of Russian oil in an effort to keep up the pressure on Moscow over its invasion of Ukraine.

But JPMorgan's analysts said in a note this weekend that Russia — one of the world's key energy exporters — is in a relatively strong position thanks to the recent increase in oil and natural gas prices.

Moscow could retaliate against the G7 price cap and slash its oil production by as much as 5 million barrels per day without causing excessive damage to its economy, JPMorgan said.

But such a cut would be disastrous for global oil markets, given the supply and demand mismatch that has already sent the Brent crude price up almost 50% this year to around $112 a barrel.

"The most extreme scenario of a 5 million barrel per day slash in production could drive oil prices to a stratospheric $380 a barrel," JPMorgan's analysts, led by Natasha Kaneva, said in the note.

The estimate underlines the risks of tightening sanctions on Russia at a time when energy prices are soaring and causing major problems for Western politicians at home.

"Russia's policymakers will likely address the challenge of the oil price cap from the position of strength," JPMorgan's analysts said. "Russia had already showed its willingness to withhold supplies of natural gas to EU countries that refused to meet payment demands."

JPMorgan said the outlook was uncertain,m but a more likely outcome was that Russia cuts its output by 3 million barrels per day, which could push oil prices to $190 a barrel. Production stood at just over 10 million barrels a day in May, according to Moscow financial newspaper Vedomosti.

The G7, which includes the US, UK and Germany, are exploring ways to cap Russian prices, including by prohibiting the buying or selling of Russian oil above a certain price. Reports have suggested they could use the UK and Europe's power over global shipping insurance to help enforce any such cap.

JPMorgan said an alternative outcome was that crude prices stabilized around current levels, with Russia rerouting its oil at lower prices towards Asia and other producers stepping up to fill any production gaps.

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