Analysts warn that it could become more costly to drive to the grocery or heat your home in winter if Russia continues its saber-rattling at the Ukraine border.
If Russia invades and the West fulfills their threats of severe sanctions, oil prices could rise to $125 a barrel. They are currently at $95 per barrel. Bob Yawger is executive director of Energy Futures of Mizuho Americas.
In a note to investors, he stated that “there is no spare capacity.” Oil prices will rise if Russia is prevented from exporting commodities and has to access foreign exchanges. “I assume that the West would sanction Russian energy assets.”
Patrick De Haan from GasBuddy’s Petroleum Analysis said that prices at the pump will likely rise in the near-term. “Certainly, $100 oil is a strong possibility without a Russian invasion into Ukraine. If it happened, all alarm bells will go off. He said that a Russian invasion of Ukraine would certainly increase gasoline prices.
The risk is that Russia could reduce its oil exports in response to U.S. sanctions. This could cause a reduction in the flow of oil to global market, which could result in a significant increase in oil prices and supply imbalance. The specific response and the magnitude of that response will determine how far it goes.
The national average gas price has risen by about one dollar per gallon to $3.48, compared to $2.50 last year.
Heating bills have been 30 percent higher for homeowners this winter. States are planning to tap hundreds of million of federal grant dollars to support Home Energy Assistance programs. Maine Governor. Janet Mills announced that she would give a $90 credit to low-income residents to help offset rising costs.
As shareholders demand “fiscal discipline”, policies that limit oil producers’ expansion and produce at low levels to lower costs and increase margins, the price of oil and gas has been rising. Prices on lower supply have risen due to an earlier-than-expected return of increased driving and a colder winter.
Recommendation
The market has already accounted for the Russian invasion risks that have caused a lot of the recent price rises. Analysts believe that although there will be some volatility in the short-term, the long-term effects will be negligible.
Alejandro Olivo is the managing director of Moody’s Investors Service’s Investors Service. He stated that there has been some disruption and volatility due to uncertainty following a conflict. “But, much of this risk has already been built-in and is being captured by the market.
The firm stated in a note that tensions would not escalate into a full-blown military conflict because of the economic and militarily costly costs Russia would face.
It is possible that the U.S. stock markets will also falter. Analysts say that stock prices have been based on earnings in the past and that unless a company has strong tangible ties with Ukraine, it will have little long-term effect.
“Oil prices will depend on what happens in Eastern Europe. However, some of the recent price increases are due to fears about possible disruptions amid hostilities. According to Greg McBride (chief financial analyst at Bankrate), there is a certain level of risk in current prices. “Historically, extremely significant and massive global events have had little impact on the stock markets. Stock prices are influenced by corporate earnings. When big events occur, investors quickly evaluate the impact on corporate profits and adjust their price accordingly.
