① J.P. Morgan's strategists warned that Russia's crude oil production reduction strategy at the beginning of the month may push Brent crude oil to $100 per barrel; ② Higher oil prices will inevitably push up gasoline prices. Some analysts point out that this will put pressure on the Biden administration before the election.
Financial Services News, March 28 (Editor Zhou Ziyi) J.P. Morgan Chase's strategist recently warned that without countermeasures to balance Russia's decision to cut production, Brent crude oil will rise to $100 per barrel this year.
Natasha Kaneva, head of global commodity research at J.P. Morgan Chase, pointed out in a report on Wednesday (March 27) that Russia decided to cut production by another 471,000 barrels per day in the second quarter, which means Brent crude may test the $100 mark later this year.
At the beginning of March, Russia announced that it would voluntarily reduce crude oil production and exports by 471,000 barrels per day in the second quarter of this year. This is a further measure based on production cuts in 2023. In February of last year, Russia announced that it would cut its average daily crude oil production by 500,000 barrels starting in March. The decision has since been extended until the end of 2024.
Additionally, other OPEC+ members announced at the beginning of this month that they would extend voluntary production cuts for the first quarter until the end of June.
As for the reason for production cuts, Russian Deputy Prime Minister Novak said that voluntary production cuts are aimed at strengthening the ability of “OPEC+” countries to maintain stability and balance in the oil market and are in line with OPEC+ commitments.
In response, Kaneva stated, “Russia's oil strategy was unexpected. “On the face of it, assuming no policy, supply, or demand response, Russia's actions could push Brent to $90 in April, to around $90 in May, then close to $100 in September, and put pressure on the Biden administration on the eve of the US election.”
Biden's re-election is in jeopardy
Kaneva added that as oil prices rise, gasoline prices in the US could rise to $4 per gallon by May, the highest level since summer 2022.
Some analysts pointed out that for every sudden increase in the cost of crude oil by one dollar, Biden's approval rating will drop by at least 1%.
However, Kaneva also pointed out that some countermeasures may play a role in mitigating the rise in oil prices, including whether the US will release more crude oil from its strategic oil reserves (SPR).
Furthermore, demand disruption is another potential countermeasure to lower oil prices. J.P. Morgan explained that the rise in oil prices due to supply shocks is different from the rise in oil prices caused by demand shocks. It may inhibit consumers' purchasing power, thereby dragging down economic growth and oil demand. The bank believes that given the strength of the US dollar and high borrowing costs, oil prices significantly above $90 may seriously damage global oil demand.
Currently, J.P. Morgan strategists are still maintaining their long-standing forecast, that is, oil prices will be 90 US dollars per barrel before May and fall to 85 US dollars per barrel by the second half of this year, but they say that in the process of reaching these predictions, oil prices may hit 100 US dollars.