Oil prices briefly rose above $114 on Friday as traders assessed whether Western sanctions on Russia’s energy industry could outweigh a potential increase in supplies from Iran and gauged the impact of an attack on a nuclear power plant in eastern Ukraine.
Brent crude futures were up 1.4% at $112.00 a barrel at 5:17 a.m. ET, after hitting $114.23 earlier in the session. West Texas Intermediate rose 2.1% to $109.90 a barrel after earlier reaching $112.84.
Russian forces seized Europe’s largest nuclear power plant, located in Ukraine’s Zaporozhye, after an attack set fire to a building at the complex early Friday. Fears would lead to a nuclear disaster that would spread as the fire burned, but subside once it was under control.
Thursday’s second round of talks between Russia and Ukraine failed to reach a ceasefire.
“As supply risks have become real, we have entered a very volatile phase where no solution that does not potentially push prices to demand-killing levels is possible. On the other hand, a peace deal may wipe out much of the gains made during the last 10 days,” Saxo Bank’s strategy team said on Friday.
Oil prices saw big intraday swings on Thursday, opening near $120 a barrel, with trading activity in Russian crude slowing as traders took the plunge and stayed on the sidelines. They fell later in the day on investors’ hopes for a renewed Iran nuclear deal that could boost Tehran’s oil exports.
Friday’s rise in prices is driven by concerns that Western sanctions will disrupt the flow of exports from Russia, the world’s second-largest oil producer.
U.S. lawmakers on Thursday called on the Biden administration to end U.S. imports of Russian oil in addition to earlier sanctions against Russian oil refineries. The White House has said a freeze on Russian oil is possible, but has indicated it is not yet ready to act.
Currently, about 66% of Russian oil is struggling to find buyers, JPMorgan analysts said in a note on Thursday. The bank estimates that oil prices could soar almost 70% from current levels to $185 by the end of the year if demand for Russian crude remains disrupted.
The scale of the supply shock is so great that oil prices would have to reach and stay at $120 for months to support demand destruction in the short term, assuming there is no immediate return of Iranian oil, JPMorgan said.
“As sanctions expand and a shift towards energy security becomes an urgent priority, Russian oil sales to Europe and the US are likely to be affected, potentially affecting up to 4.3 million barrels per day,” the analysts said.
JPMorgan said $185 a barrel is on the cards only if Russian supply cuts continue. So it kept its price forecast, with analysts still expecting Brent to average $110 a barrel in the second quarter, $100 in the third quarter and $90 in the fourth quarter.
Due to the absence of barrels of Iranian oil in the market, crude oil is expected to average $115 in the second quarter, $105 in the third quarter and $95 in the fourth quarter.
“The sanctions against Russia have been severe and the consequences are already evident, even though they were meant to protect exports of oil and other key commodities,” said Craig Erlam, chief market analyst at OANDA.
“I would be surprised if upward pressure on oil prices does not resume unless something fundamentally improves,” he added.
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