InvestorQ : What are the possibilities for oil prices going ahead in the next few weeks?
Dhwani Mehta made post

What are the possibilities for oil prices going ahead in the next few weeks?

Dilmini Mercia answered.
12 months ago

You can almost say that oil markets are in a state of flux. It is kind of touch and go and the markets can push the oil prices either ways. Let me paint 3 possible scenarios, the way I see it from here on.

a) Let us look at the first scenario that oil price could go much higher from here on. That is a perfect possibility. The previous peak was $147/bbl scaled in the year 2008 and that is less than $30 away now. If Vladimir Putin continues to dig deep into Ukraine and the US and Europe deepens sanctions on Russia, crude can scale $150/bbl and possibly beyond that. Goldman Sachs has already pegged $200/bbl projection, but that is still far off. In short, if the war situation worsens, then prepared for much higher levels of crude oil.

b) Now for the second option and a more likely option that oil prices could normalize and most countries could conclude that it is the best option for everyone. For instance, Russia may decide to halt hostilities. Russia wanted to prove a point and keep NATO away from Ukraine. If that is taken care of, there could a very rapid return to normalcy. But Putin will want to extract his full price before letting go, so a lot will depend on what the west does and how they react to the demands of Russia. But this is very likely.

c) The third and perhaps the most dangerous option is that there is a sudden collapse in demand for oil as people put off plans and production. This can be disastrous. Even $150 per barrel can be tolerated for some time but collapse in demand will be like what happened in the post 2008 scenario or during COVID when WTI crude fell into negative. It would mean central banks again have to turn back the monetary policy levers and start loosening exactly the way they have been doing for last 14 years. Remember, we have seen 2 oil demand collapses and just cannot handle a third oil demand collapse!

In my view, the second scenario looks the most likely and it will also be good because it will allow normalcy to return to oil, growth and central bank policies after a brief gap.