Oil could hit $380 barrel if Russia cuts output due to price cap, says JPMorgan

Reuters – Brent oil prices could rise to a “stratospheric” $380 a barrel in the “most extreme scenario” in which Russia cuts oil production by 5 million barrels per day (bpd) in retaliation for a price ceiling considered by Group of Seven (G7) countries, JP Morgan analysts said in a July 1 note.

The G7 economic powers agreed last week to explore a ban on Russian oil that is sold above a certain price, with the aim of limiting Moscow’s ability to finance its invasion of Ukraine, which Moscow describes as a “special operation”. “.

“A price cap of $50-60 per barrel would likely serve the G7’s goals of reducing oil revenues for Russia while ensuring barrels continue to flow,” the bank said.

“The most obvious and likely risk” is Russia not cooperating and retaliating with a reduction in oil exports, he said, adding that Moscow could cut production by up to 5 million bpd “without unduly harming its economic interest.”

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“Given the high level of stress in the oil market, a cut of 3.0 million bpd could cause the global price of Brent to jump to $190 per barrel, while in the worst-case scenario, a cut of 5 million bpd could drive the price of oil to a stratospheric $380 a barrel,” JP Morgan said.

Russian Deputy Prime Minister Alexander Novak said last week that attempts to limit the price of Russian oil could lead to an imbalance in the market and drive prices higher.

JP Morgan also stipulated alternative scenarios in which China and India do not cooperate with the G7 on the price cap, or Russia fully redirects exports from west to east but loses pricing power.

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