- Oil rebounded Friday after a fire broke out at Europe's largest nuclear power plant in Ukraine.
- Prices are seeing strength on fears the US will slap sanctions on Russian energy, which could disrupt the market severely.
- JPMorgan estimates crude oil prices could end the year by soaring 68% to $185 a barrel.
Oil prices briefly rose above $114 Friday as traders assessed whether Western sanctions on Russia's energy industry might outweigh a potential rise in supply from Iran, and gauged the impact of an attack on a nuclear power plant in eastern Ukraine.
Brent crude futures were last up 1.4% at $112.00 a barrel as of 5:17 a.m. ET, after hitting $114.23 earlier in the session. West Texas Intermediate rose 2.1% to $109.90 a barrel, after reaching $112.84 earlier.
Russian forces seized the largest nuclear power plant in Europe, located in Ukraine's Zaporizhzhia, after an attack that set a building in the complex on fire early Friday. Fears that it would lead to a nuclear disaster spread as the fire burned, but eased once it was contained.
A second round of talks between Russia and Ukraine Thrusday failed to deliver a ceasefire.
"With supply risks having become real, we have entered a very volatile stage, with no solution potentially forcing prices to levels that kills demand. A peace deal on the other hand may remove a large chunk of the gains seen during the past 10 days," Saxo Bank's strategy team said Friday.
Oil prices saw big intraday swings Thursday, starting at nearly $120 a barrel with trading activity for Russian oil slowing as traders self-sanctioned and stayed away. They fell later in the day on investor hopes of a revived nuclear deal in Iran, which could boost oil exports from Tehran.
Friday's price gains are being driven by concerns that Western sanctions will disrupt the flow of exports from Russia, the world's second-largest oil producer.
US lawmakers urged the Biden administration on Thursday to end US imports of Russian oil, in addition to earlier sanctions on Russian oil refiners. The White House has said a block on Russian oil is possible, but has signaled it isn't yet ready to act.
Currently, about 66% of Russian oil is struggling to find buyers, JPMorgan analysts said in a note Thursday. The bank estimates that crude prices could skyrocket nearly 70% from current levels to $185 by the end of the year if Russian oil demand remains disrupted.
The scale of the supply shock is so big that oil prices would have to hit and stay at $120 for months to encourage demand destruction in the short-term, while assuming there's no immediate return of Iranian crude, JPMorgan said.
"As sanctions have widened and the shift to energy security takes on an urgent priority, there will likely be ramifications for Russian oil sales into Europe and the US, potentially impacting up to 4.3 million barrels per day," analysts said.
JPMorgan said $185 a barrel is in view only if disruptions to Russian supply continue. So it maintained its price forecast, with analysts still expecting Brent to average $110 a barrel in the second quarter, $100 in the third quarter, and $90 in the fourth quarter.
In the absence of Iranian crude barrels in the market, it expects oil to average $115 in the second quarter, $105 in the third quarter, and $95 in the fourth quarter.
"The sanctions against Russia have been severe and the consequences are evident already, even if they were meant to shield exports of oil and other key commodities," Craig Erlam, senior market analyst at OANDA, said.
"I would be surprised if upward pressure on oil prices doesn't resume unless something fundamentally improves," he added.