Doomsday Scenarios for Oil - JP Morgan Sees $380 a Barrel, While Citi Sees $65 a Barrel.

From one extreme to the other, with one key word: complete uncertainty for the months to come.

The oil markets don't know which way to turn.

On the one hand, you have Citi looking at the possibility of $65 a barrel in the event of a global recession. On the other hand, analysts at JPMorgan are warning of a “stratospheric” oil price of $380 per barrel if geopolitical tensions continue.

But the scenarios developed by the experts agree that the global economy is heading straight for another shock. At JPMorgan, research teams are looking at the possibility of an escalation in the conflict with Russia. And in particular, on Moscow's reaction to a cap on Russian oil prices, a measure discussed within the G7 to dry up the financing of the war in Ukraine.

Russian retaliatory measures could send the price of a barrel close to $400, compared to about $100 at the time of writing:

This could lead to a new bout of inflationary fever and worsen the economic situation of many companies and households.

Analysts point out a key point to justify their doomsday predictions: the Kremlin has the means to reduce its production by 5 million barrels per day (mb/d) without affecting its economy too much. “The most apparent risk, in the event of a cap, is that Russia will no longer participate in the market and retaliate by reducing its exports,” according to the experts.

“It is likely that the Russian government will respond by cutting production to hurt the West. The tension in the global oil market is working in Russia's favor,” the experts said.

Just if Moscow pumps 3 mb/d less, prices could rise to $190.

Conversely, Citi analysts wonder whether oil will not plunge to $65 in the coming months, despite geopolitical tensions, to end 2023 at $45. This is no cause for celebration, however: the cause behind this cheap oil is a global recession.

The teams at Goldman Sachs have, for once, the most balanced forecast of the moment. According to their calculations, black gold could rise to between $140 and $160 this summer due to the return of Chinese demand and OPEC's difficulties in extracting more crude oil.

One thing is certain: consumers will pay a high price in the months to come

Regardless of the direction of prices in the coming months, motorists should be prepared for higher fuel prices. Even if the price of gasoline and diesel feedstock were to fall, there are not enough refineries to turn crude into fuel, experts warn.

In 2008, the refining industry was unable to keep up with rising demand. Gasoline soared to more than $4 a gallon in the United States (about 3.78 liters).

Today, the price at the pump is already around 5 dollars in America. And the situation is not about to improve. In the wake of the pandemic, during which demand collapsed, many refineries have been shut down.

Between 2019 and 2022, for example, the United States lost more than one million barrels per day in refining capacity. These infrastructures are difficult to restart from both an industrial and financial point of view, in a context where investors are beginning to turn their backs on fossil fuels.

While uncertainties, therefore, remain regarding the future price of a barrel of oil, with a doomsday scenario and a pessimistic scenario of a global recession, one thing is certain: consumers will once again be the ones to pay the highest price for the consequences of the geopolitical tensions created by the war in Ukraine unleashed by Vladimir Putin