How bad can crude oil prices get?

Supply-side shocks emanating from the ongoing Russia-Ukraine war - which is in its 13th week - are keeping oil rates elevated.

Concerns over a drop in US stockpiles and shrinking supplies from Russia and Libya are supporting oil prices, though the International Monetary Fund's 80 bps cut in its global growth forecast has kept the upside in check. 

JPMorgan sees the risk of Brent hitting $185 a barrel if the European Union acts quickly to impose a full and immediate ban on Russian oil, Bloomberg reported. "There wouldn’t be enough appetite or time to re-direct the barrels to China and India," the report quoted analyst Natasha Kaneva as saying.

That is in stark contrast to HSBC Global Research's forecast earlier this month. In its report dated April 11, the research house lowered its Brent forecast for the second quarter of 2022 to $106 per barrel.

Its longer-term assumptions remain unchanged at $95 a barrel in 2023 and $85 a barrel in 2024.

Falling Russian supply

High prices hurting demand

Some relief from the release of strategic petroleum reserves

Hopes of increase in US supply

OPEC+ continues to resist calls to accelerate output increase

Sugandha Sachdeva, VP-Commodity & Currency Research at Religare Broking, believes oil rates are likely to see heightened volatility and remain vulnerable to any European Union embargo on Russian oil imports.

"Prices would largely be governed by how the geopolitical situation unfolds in Eastern Ukraine and whether Russia faces further international isolation," she told CNBCTV18.com. She sees Brent testing $140/bbl initially, and, in case of a convincing breach, expects it to head towards $180/bbl from a medium-term perspective.

Higher crude oil prices are a dampener for countries such as India, which meets the lion's share of its oil requirement through imports.

"Indian fuel prices continue to be at elevated levels due to depreciation in the rupee and logistics issues from Russia," Manoj Kumar Jain, Head-Commodity and Currency Research at Prithvi Finmart, told CNBCTV18.com.

He sees West Texas Intermediate (WTI) crude moving in the range of $90-112 per barrel in the next one month.

Religare is of the view that though the crude oil trajectory is skewed on the upside, there are certain downside risks as well. Sachdeva said it is unlikely that the oil markets will be able to digest the loss of Russian oil.

"It would create chaos. Outages from Libya have also accentuated the tight supply scenario. Traders and refiners are scouting for crude to replace Russian cargoes since Russia’s invasion of Ukraine triggered international sanctions," she added.

Brent has been drifting lower since mid-March amid bearish demand data from the US and China, and the release of strategic reserves by the world's largest economy.

HSBC expects US output to grow by 1.2 million barrels per day in 2022, driven in particular by increased activity at private shale operators, although the industry is showing signs of logistical and labour constraints.

However, it added: "Even with higher US and OPEC+ supply and real signs of slowing demand growth, Russian losses mean we still see a modest supply deficit in 2022."