Goldman sees Brent hitting $175/b this year if Ukraine war crimps more Russian exports

Brent crude prices could reach $175/b this year if two-thirds of Russia's seaborne oil exports are curtailed over its war in Ukraine, with the global economy facing with one of the largest energy supply shocks ever, according to Goldman Sachs.

The loss of 2 million b/d of Russia's 6 million b/d of seaborne crude and product exports would likely bring Brent spot futures prices to $145/b, while a loss of 4 million b/d would require prices reaching $175/b, the bank said in a note dated March 7.

"We believe that the sanctions on Russia could be setting in motion a potentially large fall in global oil supply that would redraw the global energy map," the bank said, noting that a release of emergency oil stocks, higher OPEC production and lifting of oil sanctions on Iran would fail to meet the supply shortfall.

"While all of these measures could help offset a sizable decline in Russian seaborne exports, they would leave the global oil market with no buffer, still requiring demand destruction through higher prices."

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Crude oil futures climbed to trade at $127.78/b in midday European trading March 8 after Russia's deputy prime minister Alexander Novak warned oil prices could hit $300/b if US and European consumers banned imports.

Goldman said its current base-case forecast is for a 1.6 million b/d disruption to Russian oil exports due to actual or feared sanctions on Russia. As a result, the bank said it has raised its 2022 Brent spot price forecast to $135/b, with its 2023 forecast now at $115/b, up from $98/b and $105/b respectively.

Although there are no formal sanctions on exports of Russian crude or oil products, cargoes have been rejected for various reasons, including fear of energy sanctions being imposed after the title transfer; limited access to credit with Russian banks not part of the SWIFT global payments messaging system; a lack of desire from shipowners/charterers to call at Russian ports and escalating freight; and cargo insurance costs.

S&P Global Commodity Insights expects that as much as 1 million-2 million b/d of Russian oil production could be shut in due to the combination of actual sanctions and other factors hitting purchases of Russian oil.