JPMorgan Sees Ukraine Risk Pushing Oil To $110 In Second Quarter

Emmanuel Addeh

Oil prices are likely to average $110 in the second quarter as tensions over Ukraine continue to escalate, JPMorgan Chase & Co., has said.

The crude market is likely to see sustained higher prices in the next quarter, before retreating to average $90 at the end of the year, the bank’s analysts including Natasha Kaneva wrote in a note.

Reuters reported that the forecast assumes an escalation in tensions between Russia and the West over Ukraine, alongside a nuclear deal with Iran that would still return some supply to the market.

Brent last week exceeded $100 a barrel for the first time since 2014, while tensions in Eastern Europe have fired prices higher, traders also see global oil stockpiles being whittled away as demand outpaces supply.

Brent oil will average $110 a barrel next quarter and West Texas Intermediate $107, according to the JPMorgan analysts.
That represents an increase of $22 compared with the bank’s prior estimates for both grades.
But oil prices slipped on the last day of transaction for the week, after it went on overdrive a day earlier on the back of Russia-Ukraine face-off.

On Thursday crude oil price had surged above $105 a barrel for the first time since 2014 after Russia attacked sites across Ukraine.

The situation signalled the worsening of an already tightening global supply market.

The Organisation of Petroleum Exporting Countries (OPEC), an international group of oil producers, was already struggling to meet its own production target before the latest threat.

Russia is the world’s third-largest oil producer and second-largest oil exporter and any impact on its production could markedly affect the market.

It is also the largest provider of natural gas to Europe, providing over 35 per cent of its supply.

Brent was up about 6 per cent on the day, paring gains after surging as much 9.2 per cent to $105.79 a barrel after President Vladimir Putin ordered Russian troops into Ukraine.

The United States benchmark, West Texas Intermediate (WTI) also briefly topped $100 a barrel before easing off of gains.

In addition to oil and gas, Russia is a major producer of aluminium and wheat, which Ukraine also grows.

The increase in the price of multiple commodities is contributing to a surge in inflation to the highest level in decades, threatening a cost-of-living crisis for millions.

In Nigeria, the federal government had last week expressed concerns over the current increasing international prices of crude oil, saying the surge was not good for the country.

Minister of State, Petroleum, Mr Timipre Sylva, maintained that Nigeria’s comfort zone for oil prices was between $70 and $80, running contrary to sentiments expressed by the Group Managing Director, NNPC, Mallam Mele Kyari, last year, who pegged the country’s comfort zone at between $50 to $60.

The country’s controversial subsidy regime which will gulp N3 trillion this year , coupled with its inability to ramp up production to meet the quota allocated by OPEC, have combined to ensure that the gains from the soaring prices do not have a positive impact on the country.

Sylva blamed the inability of Nigeria to activate the oil wells it shut down when OPEC instructed producing countries to cut production as well as the lack of investment in the upstream sector. At the moment, Nigeria is losing at least 300,000 bpd due to its capacity challenges.