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A deeper drop in Russian oil supply is likely to trigger a global recession and a full-blown energy crisis, Bank of America warns
Harry Robertson
Fri, May 27, 2022, 8:25 AM
Gas prices, oil prices, gas station
Oil prices have shot up this year already, causing pain at the pumps.Rogelio V. Solis/AP

https://www.yahoo.com/finance/news/deeper-drop-russian-oil-supply-152544266.html

A further decline in Russian oil supply is likely to spark a global recession, Bank of America said Friday.

The bank warned oil prices could hit $150 a barrel, and an energy crisis could ensue, if supplies fall sharply.

Russia's oil production has fallen by around 1 million barrels per day in 2022, as sanctions have hit the country.

Any further drop in Russian oil supply is likely to lead to a global recession and could even trigger a full-blown energy crisis that pushes prices past $150 a barrel, strategists at Bank of America have warned in a note.

Russian oil production has fallen by roughly 1 million barrels per day (bpd) in 2022, according to a BofA team led by Francisco Blanch. The fall has come as countries and traders cut their purchases of the country's energy following its invasion of Ukraine.

They said Friday they expect supply from Russia to fall from 11.4 million barrels a day in the first quarter of 2022, to an average of 10 million barrels a day in 2023.

"That's probably just about as much as the world can handle without triggering a major negative economic outcome," Blanch and his colleagues wrote.

The bank's strategists warned that a deeper fall could wreak havoc on energy markets.

"We believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150 a barrel," they said. That's well above the roughly $110 current level that has driven a spike in fuel prices.

The 1970s and 1980s were decades in which energy markets were chaotic and global growth suffered.

Bank of America said global economic growth and energy demand are tightly correlated, with demand increasing in line with rises in gross domestic product.

Yet the bank noted that energy stocks are currently very low, with the crude oil stocks-to-use ratio at around its lowest ever level. Therefore if global growth is to continue, supplies need to rise.

The problem is, output is unlikely to tick up sharply, due to Russia's supply problems and other issues, including weak investment in oil. The situation could also worsen if the European Union agrees upon a total ban of Russian oil.

"The next negative energy supply shock will have to be accommodated by a mirroring energy demand growth (or GDP growth, if you like) contraction or by supply growth elsewhere," the strategists said.

At $102 a barrel so far this year, Brent crude oil prices are currently close to their highest average levels ever, of $112 a barrel in 2012, BofA said.

Brent crude was little changed Friday at $114 a barrel, up around 47% since the start of January.

Read more: 'The pain isn't over yet'. The investing chief of a $1 billion digital asset manager expects stocks to fall another 30% - and says the sell-off could cause bitcoin to plummet below $22,000

Read the original article on Business Insider