Expectations for Brent crude price increases seem to be reverberating around the markets again. A complete ban by the EU on Russian oil could actually lead to such a scenario by creating supply bottlenecks and an energy scare.
Analyzing the situation, Andy Lipow of Lipow Oil associates speaking during an interview on CNBC shared his view on the oil markets:
“I don’t think there’s going to be a full ban. But I do think that the European Union is going to come to an agreement with Bulgaria, Czech Republic, Slovakia, and especially Hungaria.”
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He also added:
“Now when you mention the complete oil ban in European Union. I think that the issue for the market is, how are we going to come up with enough alternative supply to make that work. What that really means is that the prices have to continue to go up. I would expect Brent prices to go back to $120 a barrel.”
Consensus is key
As per Mr. Lipow, the above-mentioned four countries will probably have to be given an exemption on the Russian oil ban since they don’t possess the logistical capabilities to avoid Kremlin’s energy completely. So far, it seems as if the EU will continue to remove Russian energy from their territories, which could result in oil prices increasing.
On the other hand, the potential downside to Brent prices currently hinges on China and demand destruction there due to new Covid lockdowns imposed by the state. Based on the price action in oil in the previous weeks, it seems as if market participants are viewing the China issue as a transitory issue.
At the height of the Covid lockdowns in April 2020, with the demand for oil almost completely destroyed oil prices went into negative territory for the first time in their history.
It is unlikely that a similar scenario can be repeated any time soon; yet, there needs to be some downside risk to rising oil and energy princess across the globe. At the moment it is difficult to recognize what those risks could be, but it’s also highly unlikely that oil prices will continue to climb indefinitely.
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