- Oil prices could double to $240 a barrel by summer, according to Rystad Energy’s head of oil markets.
- Bjørnar Tonhaugen said that western energy embargoes on Russia will cause prices to continue to rise.
- He predicted that this could cause a global recession and the worst oil crisis since the 1990 Gulf War.
Russia’s invasion of Ukraine has driven a sharp rise in crude oil prices – but a senior commodities specialist at an energy research company warned that the run-up is far from over.
“Oil prices could hit $240 a barrel this summer,” Rystad Energy’s head of oil markets Bjørnar Tonhaugen said in a recent research note. “This is the largest energy crisis in decades and the impact on the world’s most important commodity is going to be unprecedented.”
Insider breaks down Tonhaugen’s latest oil price outlook – and his warning that there could be a global recession if crude hits $240 a barrel.
Oil price outlook
On Tuesday, US president Joe Biden announced a ban on Russian oil and gas exports – which Bank of America previously warned could push crude prices up to a new all-time high of $200. Tonhaugen agreed that those sanctions are likely to cause prices to soar.
“Market volatility is at an all-time high, with prices surging on the expectation that supply will further tighten due to restrictive sanctions on Russian energy from the West,” he said. “If more Western countries join the US and impose oil embargoes on Russia, it would create a 4.3 million barrels per day hole in the market that simply cannot be quickly replaced by other sources of supply.”
Russia is the world's third-largest oil producer, behind the United States and Saudi Arabia, and it accounts for roughly 10% of total global supply, according to the IEA.
Tonhaugen's price analysis indicated that the supply shortfall from cutting Russia out of the global oil trade would be large enough to push prices up to $240 a barrel - more than double the $107 level it was trading at Friday.
"Oil prices will continue to rise until they reach an unsustainable level that curtails demand," Tonhaugen said. "That threshold could potentially be as much as $240 per barrel."
Recession fears
A spike that significant would cause inflation - which is already at a four-decade high of 7.9% - to soar even further. Biden has warned ordinary Americans are likely to feel the impact of 'Putin's price hike' at the gas pump later this year.
Tonhaugen warned that it could also hit global growth and cause a recession.
"Although fortunately not the most likely scenario, traders, analysts and decision-makers alike should prepare for elevated prices based on the current landscape," he said. "The higher prices go, the larger the chances of the global economy entering a recession already in the fourth quarter of 2022."
A recession is a contraction in economic activity, typically over two consecutive quarters. This is measured by changes in gross domestic product and a number of other monthly indicators, such as unemployment.
Tonhaugen isn't the only person worrying about that scenario at the moment. Insider recently listed seven prominent strategists who have also voiced recession fears.
History lessons
Tonhaugen added that this was already the worst oil crisis since 1990.
In that year, Iraq invaded Kuwait, hitting the two countries' combined daily supply of over 4 million barrels. Oil prices surged from $21 a barrel to $46 a barrel within the space of three months.
"Prices may again double in the coming months if all western exports of Russian-associated crude is either embargoed, shunned or by other means needs to be replaced," Tonhaugen said. "[It is] the worst potential crisis for the oil market since the 1990 Kuwait invasion by Iraq."
