European sanctions on Russian crude, OPEC output cuts, and a surge in oil demand from China will drive crude oil prices to new highs.
Oil markets are facing a slate of global risks in the months ahead that could propel crude prices to about $120 a barrel and then keep them there, Markets Insider reported, quoting oil markets analyst Livia Gallarati.
Among the most near-term risks are European Union sanctions on December 5 that will ban seaborne Russian crude oil imports, she said.
The abrupt drop-off in deliveries from Europe's biggest energy supplier will likely cause a price spike for crude, Gallarati told Insider, and prices will face renewed pressure in February when the EU's next set of sanctions on refined products like diesel kicks in.
"We see prices increasing to $120 by the end of this year," she said. "And we don't really see them decreasing significantly from this level for the next two years because we see a structural problem with supply."
While Moscow has been redirecting crude to China and India, prices can still surge as the cost of transporting crude goes up. Europe will have to cut itself off from a long-standing source that's just a few days' sailing time away, and rely on more distant suppliers like the US and the Middle East, Gallarati added.
In addition, she said, Russia's crude production is already 500,000 barrels a day lower and could lose another 1.5 million barrels a day early next year as the ban on fuels forces Russian refineries to accept less upstream output.
Losing that much volume from Russia for an extended number of months will deliver a huge blow to global oil supplies, and Gallarati said that poses the single biggest risk to markets.
Separate from Europe's sanctions on Russia, China's reopening plans and US reactions to OPEC+ decisions can either keep oil prices muted or push them dramatically higher in 2023.
So far this year, China's zero-COVID approach has helped Europe because there's been less competition for Russian energy supplies, as well as supplies from other nations.
But if stifled demand in the world's second-largest economy all of a sudden returns in force, prices could surge and global supplies could face additional snags, which would particularly impact Europe, Gallarati said.
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