Oil Posts Fifth Week Of Gains As Analysts Now Warn Of Impending Price Shocks

Oil's strength is now viewed as a threat to economic recovery: File Image/Pixabay

The price per barrel of two key crude benchmarks declined slightly on Friday, but demand coupled with dwindling supplies still resulted in oil achieving a fifth straight week of gains.

West Texas Intermediate fell 41 cents to settle at $85.14 per barrel and Brent slipped 49 cents to settle at $87.89 per barrel, minimal enough for the commodity to be up 1.6 percent for the week.

Amid increasing predictions of oil hitting or exceeding $100 later this year came warnings that crude's current trading strength isn't sustainable: Citigroup Inc. cautioned that sticking to a bullish view could be dangerous after this quarter, and Rebecca Babin, senior energy trader at CIBC Private Wealth Management, noted that while commodities have been extremely resilient this year due to supply risks and geopolitical concerns, they won't "continue to be completely insulated."

Also, Bloomberg on Friday pointed out that surging crude prices have "emerged as a fresh potential headwind to the [economic] recovery………for big consuming countries, it's a blow to household spending; from heating bills to gasoline costs, it's another weight on the family budget."

Morgan Stanley estimated that if Brent remains around $88 per barrel, spending on oil would amount to about a modest 3.5 percent of global GDP in 2022 – and demand erosion could kick in.

Even $150 oil in 2022 isn't too far-fetched for some analysts, and J.P. Morgan on Friday stated that if this threshold is reached, it would be enough to reduce global growth to around 0.9 percent in the first half of this year compared to the 4.1 percent it currently forecasts; also global inflation would more than double to 7.2 percent, rather than the bank's projection of 3 percent.

J.P. Morgan analysts wrote, "Oil shocks have a long history of driving cyclical downturns; the latest geopolitical tensions between Russia and Ukraine raise the risk of a material spike this quarter."

Related energy news on Friday didn't do much to assuage analytical concerns of the consequences of demand outstripping supply: Baker Hughes reported that U.S. energy firms this week cut oil rigs for the first time in 13 weeks, by one to 481.

Also, Pavel Zavalny, the head of the energy committee in Russia's lower house of parliament, told media that that it would not easy to restore oil output in Russia C-RU-OUT, which had to cut production as a member of the Organization of the Petroleum Exporting Countries (OPEC) group of producers.

Still, Russia's oil output is expected to rise in 2022 to 540-550 million tonnes from 524.05 million in 2021.