Oil prices have path to $100/barrel on Russia cuts, but US likely to stand in way

Investing.com — Oil prices may surge to $100 a barrel as early as September following Russia’s decision to reduce production, although the U.S. is poised to tap into its emergency oil reserves to mitigate price spikes.

“Russia’s actions could propel Brent oil prices to $90 by April, approach the mid-$90s by May, and potentially reach $100 by September, exerting pressure on the US administration ahead of elections,” noted JPMorgan in a report. Oil prices have surged by 18% since hitting a low point in mid-December.

The increase in oil prices was anticipated to prompt OPEC and its allies, known as OPEC+, to ease their voluntary output cuts. However, Russia announced in early March its intention to deepen output cuts by a total of 471,000 barrels per day (bpd), aiming to bring the country’s crude oil output to 9 million bpd by June to adhere to its agreed OPEC+ output limits, according to JPMorgan’s estimates.

Nevertheless, the path to $100 a barrel Brent oil is fraught with challenges, notably a potential policy response in the U.S., where high oil and gas prices during an election year may not be politically palatable. In response to elevated oil prices leading to higher gas prices at the pump, possibly surpassing $4 a gallon, the U.S. may resort to tapping its Strategic Petroleum Reserve once again, releasing millions of barrels to mitigate price shocks.

JPMorgan suggested, “The likelihood of another release will increase if U.S. nationwide gasoline prices approach $4/gallon — a scenario we anticipate could occur as early as May — or if OPEC+ fails to increase production at the June 1 meeting.” The estimation is that the U.S. administration has the capacity to release up to 60 million barrels of crude oil.

In 2022, President Joe Biden’s administration sold 180 million barrels of oil over a six-month period from the U.S. strategic petroleum reserve to lower gasoline prices following Russia’s invasion of Ukraine.

However, a surge in oil prices beyond $90 a barrel may encounter a familiar challenge: declining demand. Some analysts concur and highlight the $90 per barrel threshold as a point where most of the potential upside has likely been factored into oil prices.

“If Brent reaches $90, we believe much of the potential upside will already be accounted for, and the remaining fundamental factors, largely related to supply growth, are likely to be bearish,” stated Macquarie.