- Oil has been one of the most volatile assets since the Russian invasion of Ukraine.
- Traders balance the impact of sanctions with both the likelihood of increased production elsewhere and the possibility that high prices would knock demand.
A recent news article published in the Market Watch states that Germany triggers early warning for natural gas supplies, as Poland vows to cut Russian oil by end 2022.
30% reduction in Russian oil production
While West Texas intermediate CL.1, -4.04% was trading around $107 on Tuesday, it’s not inconceivable to think oil could reach $200. One hedge fund trader has been making that case.
Erik Lundh and Gurleen Chadha of The Conference Board say a 30% reduction in Russian oil production could lead to $195 prices for the Brent BRN00, -3.31% grade even if other suppliers scaled up their production.
Right now, for instance, Europe is still buying Russian oil, even if the U.S. and the U.K. have blocked their purchases.
Last year, Europe consumed nearly half of Russia’s oil exports, and China consumed one-third.
An economic model
The Conference Board ran that scenario through the economic model. Such a surge in oil prices would boost already red-hot inflation, by 0.9% globally to 6.1% and by 1.1% to 7.3% in the U.S.
However, that inflation acceleration would not plunge the globe into recession.
The Conference Board projects world output would be shaved by 0.2% to 3.3%, and the U.S. economy by only 0.1 point to 2.9% year-over-year.
What the Conference Board defines as global recession, of global growth of no more than 2%, wouldn’t occur until prices reached closer to $300 per barrel.
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Source: Market Watch
