- A price cap on Russian oil could push Brent crude past $130 a barrel, BofA analysts said.
- Western leaders have touted the cap as an effective tool to combat energy inflation.
- But Russia could retaliate and send oil prices even higher, even if OPEC+ steps up production.
A price cap on Russian oil could push Brent crude prices past $130 a barrel even if OPEC+ countries step up production, according to analysts at Bank of America.
The warning comes as OPEC+ promised a small output hike of 100,000 barrels per day in September, widely viewed as a modest increase and not enough to fill the gaps in the absence of Russian supply.
But even if the cartel – which only met 60% of the agreed production hike in July, according to Reuters – fulfills its latest goal, it might not be enough to quell high oil prices, analysts from Bank of America said in a note Thursday, likely due to retaliation from a proposed price cap on Russian oil that's still in the works.
"Even as recession concerns set in and push oil lower, upside risk to prices could come from fuel substitution and Russia sanctions," the bank said, referring to the recent 50-day slide in oil prices. But, "an EU/US cap on Russian oil prices could trigger a supply cut from the Kremlin, pushing Brent prices back above $130/bbl," analysts said.
That's bad news as Russia continues to slash its oil and gas supplies from the market. It threatens to throw Europe into an energy crisis by winter, when bans Russian oil products fully kick in.
US Treasury Secretary Janet Yellen, who initially proposed the price cap, has touted the measure as the West's only hope to bring down inflation and high energy costs, although that's been disputed by energy execs and officials from Moscow.
Russia's deputy foreign ministry said the measure would "collapse" earlier this year, as a cap requires cooperation from Russia and Russia's allies, who have been purchasing crude at steep discounts while Western nations shun Russia as a supplier.
But Western leaders still think it's in the cards. A G7 official told Reuters that China and India could be on board in order to lower the costs of importing oil. Currently, the group is planning on proposing a cap targeted between $40-$60 by December 5, in time for the dawn of EU sanctions on Russia.