Goldman Sachs on February 28 raised its one-month forecast for Brent crude prices to $115 per barrel, up from $95. The upward revision comes amid the escalation of tensions between Ukraine and Russia, with the latter being hit by crippling western sanctions.
Moscow is facing severe disruption to its exports of all commodities from oil to grains, as the sanctions have cut off some of the major Russian banks from the SWIFT international payment system.
Russian crude oil grades, which account for about 10 percent of global oil supply, were hammered in physical markets.
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Since the sanctions are targeting the Russian financial systems, they are likely to "exacerbate" the commodity supply shock, said Goldman Sachs analysts.
“While details on the implementation of these additional sanctions have not been released, with carve-outs likely still allowing for energy and food trades, the hurdles that these sanctions will create for financial payments are likely to exacerbate the recent Russian commodity supply shock, already visible as Western and Chinese traders halting shipments,” added the analysts at the investment bank.
They further claimed that a demand destruction of up to 4 million barrels is needed to offset the loss of Russian supplies in the global market.
The Organization of Petroleum Exporting Countries (OPEC) may respond to the situation, but any measure taken from their end is likely to come at the expense of the global oil market's spare capacity, the analysts said.
"While such an outcome becomes increasingly likely the more Russia is ostracized from the global economy, driving core-OPEC, Iran and the West closer together, it would nonetheless come at the expense of a complete depletion of the global oil market’s spare capacity, still warranting much higher oil prices," they noted.
Notably, oil prices rallied further earlier today, with Brent crude rising by $4.82, or 4.9 percent, to $102.75 per barrel by 10:28 GMT, after touching a high of $105.07 in early trade.
U.S. West Texas Intermediate (WTI) crude was up $4.62, or 5%, at $96.21 after hitting $99.10 in early trade.
"Growing concerns about disruptions to Russian energy supplies are pushing oil and gas prices up sharply," said Commerzbank analyst Carsten Fritsch.
(With Reuters inputs)
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