$200 per Oil Barrel Possible Under the G7 Plan
According to an analyst at the Swedish bank SEB, oil prices are expected to rise to above $200 if the G7 executes measures to control the price of Russian crude and products.
On the international commodity markets, Russia is a significant player. It is one of the world's major exporters of essential raw resources such as wheat and grains, oil, natural gas, and coal, as well as gold and other precious metals, making it one of the most economically important countries in the world.
Following the coutry's invasion of Ukraine, a slew of unprecedented sanctions was imposed on Moscow to cut off its access to international financial markets and place it in a position of international isolation.
Although sanctions have not yet directly targeted Russia's energy exports, the United States and its European allies have stated that they are considering a restriction on Russia's imports of oil from Russia. This was announced on Sunday. Russia is the third-largest producer of oil and gas in the world, respectively, and the third-largest producer of gas. A prohibition would cause the company's customers to scramble for an alternative, regardless of the cost.
Brent crude futures jumped to over $130 a barrel on Monday, reaching their highest level since the middle of 2008. This was their highest level since the beginning of 2008.
However, it's not relatively as easy as that. Not only in the oil industry does Russia hold a dominant position. It is a major player in the global wheat and coal production markets. And there is a school of thought among industry professionals that believes Western politicians will refrain from imposing full-fledged embargoes because the subsequent price increases could do too much damage to their economies.
Last week, Fereidun Fesharaki, chairman of energy consultancy business FGE, told Bloomberg that Russia is too huge to sanction. "Russia is too big to sanction," he said.
The world market can't function without oil from Russia, and there is no way Europe could function without gas from Russia.
An analyst at the Swedish bank SEB predicted that if the G7 follows through with its plans to put a price restriction on Russian crude and products, the price of oil will certainly skyrocket to more than $200 per barrel.
The high-stress levels in the oil market, where prices have more than doubled to around $120 per barrel this year, prompted Bjarne Schieldrop to say on Wednesday that the plans were a "recipe for disaster." Bjarne Schieldrop was referring to the fact that oil prices have increased to around $120 per barrel.
On Tuesday, the Group of Seven (G7), comprised of the world's most economically developed democracies, announced that it is investigating whether or not it is possible to place a ceiling on the price of Russian oil. It is trying to prevent the country from benefiting from the spike in energy costs that the country's invasion of Ukraine has caused.
The coalition, which includes the United States, Germany, and the United Kingdom, has indicated that it may try to halt the shipping of any Russian oil that was not purchased at a price that was at or below a specific threshold. Although not all of the specifics have been worked out yet, the plans will likely require widespread international approval to succeed.
Schieldrop stated that although the proposal appears to be "neat on paper," in reality, it appears to be "a formula for disaster right now."
According to him, producers such as Russia have been given enormous influence in the market this year due to strong demand and low supplies. In addition, he stated that Russia could decide not to export any of its oil if a price ceiling was implemented.
According to Schieldrop, the proposals could decrease Russian output by as much as 2 million barrels per day, putting additional strain on a market for oil that is already under duress.
"G7 countries are today praying that Russian oil exports will not fall down," Schieldrop said in a note on Wednesday. "G7 countries today pray that Saudi Arabia will not increase its oil exports." Because of this, if they do it, the price of oil will skyrocket from its present level of $117 per barrel too much above $200 per barrel.
He continued by saying, "In the end, if the price cap regime is enforced and buyers try to stick to it, then naturally Russia will respond, 'pay the price or no oil,'" which was followed by laughter from the audience.
The European Union has said that they intend to prohibit the import of 90 percent of Russian oil by the end of 2022. This news has led strategists to believe that Russia's output is already destined to decrease. According to estimates made by analysts, Russia's daily oil production in May was around 10 million barrels.