Rising Oil Prices to Fuel Global Recession
Whether it is the third world war or fresh global recession, neither is desirable but the risks are getting high as there are fresh projections that oil prices could hit as high as $200 a barrel amidst Russia-Ukraine.
The worsening energy crunch is projected to have drastic impacts on global economic performance which started a healing process in 2022 following the covid-19 Omicron variant that had slowed down the growth pace.
Russia’s invasion into Ukraine territory has triggered heavy sanctions from world power but there are indications that each still has relationships they are protecting – in the short to immediate term.
The US has placed an immediate ban on Russia’s energy imports but European Union appears to be conservative given the region is heavily dependent on Russia for oil, and gas.
Those sanctions have started impacting the global financial markets with asset sell down in the Russian Federation as the country’s currency ruble shed weight. READ: Russia’s Invasion Rattles Financial Markets, Assets Swing
Today, oil prices rose in the early hour of trading, extending gains from the previous session after the Biden Administration unveiled an immediate ban on imports of Russian crude and other energy products over its invasion of Ukraine.
On top of the US ban, the UK signalled it will phase out Russian oil imports by the end of 2022, further fueling worries about tightening supply. Brent crude jumped 1.8% to top $130 per barrel, while West Texas Intermediate crude increased 1.5% to over $125 per barrel.
Oil prices have remained firm as markets already anticipated US President Joe Biden’s unilateral ban on Russian energy imports, OANDA analyst Jeffrey Halley said in a Wednesday note.
Europe’s decision not to follow the US’ lead due to their circumstances prevented a further squeeze on prices, Halley noted.
Europe cannot instantly replace Russian imports and while the continent is working to reduce reliance on them, European markets remain vulnerable to potential unilateral energy bans coming from Moscow, the analyst said.
Predictions of $200 per barrel oil would certainly cause a global recession but Halley said it is doubtful these levels will be reached. The US is reportedly reaching out or planning to talk to Venezuela, Saudi Arabia, and Iran, with US shale companies potentially ramping up production.
Still, any increase in oil production to offset Russian supplies will take time, and $150 per barrel of oil cannot be ruled out, Halley said.
Russia is facing sanctions that could drag the country’s economy downward and there is expected to be a drill-down effect on the global economy – especially its trading partners that have weighed into the ongoing war with Ukraine.
Russian oil imports made up about 3% of US oil imports in 2021, while 8% of the UK’s oil imports came from Russia.
Meanwhile, the EU unveiled a plan to cut Russian gas imports by two-thirds within a year, with the proposal including a call to fill gas storage capacity to 90% by Sept. 30, up from about 30% currently, Commerzbank said.
Affected by moves in the oil and gas sector, US stocks closed at the lowest level since June 2021, while US bond yields rose across the board on inflationary concerns, the bank said. #Rising Oil Prices to Fuel Global Recession
