Oil prices steady after turbulent Tuesday as banks warn of $120 price point

Global oil prices were in calmer territory on Wednesday after surging to seven-year highs in the previous session, as the prospect of Iranian crude re-entering the global market loomed large and the first wave of US and European sanctions on Russia did not seek to disrupt energy supplies.

International oil prices rose just shy of US $100 a barrel on Tuesday, as traders weighed a possible disruption of exports from Russia after Moscow ordered troops into two breakaway regions in eastern Ukraine. Dated Brent, the price of cargoes bought and sold in the North Sea, reached $100.80 a barrel on Tuesday for the first time since 2014, due to ratcheting tension.

But a senior US State Department official told reporters late on Tuesday that actions the Biden administration took or will take in the coming days to sanction Russia’s economy are not intended to hit global energy markets.

“The sanctions that are being imposed today, as well that could be imposed in the near future, are not targeting and will not target oil and gas flows,” the official said on the condition of anonymity, reported Reuters. “We would like the market to take note that there's no need for increasing the price at the moment.”

The potential return of more Iranian oil to the global market, with Tehran and world powers close to reviving a stalled nuclear agreement, also kept a firm lid on prices – which remain a long way off the record peak of more than $147 hit in July 2008.

But at least two global banks predicted a steady rise in oil prices as the world heads into a geopolitically turbulent summer.

According to JP Morgan, OPEC+ will continue with incremental production increases but underperformance and existing output cuts by some members will drive prices.  “Supply misses are rising. Market recognition of strained capacity is also growing,” the bank said. “We believe this should drive a higher risk premium ... circa $125 a barrel as early as 2Q 2022 and $150 a barrel in 2023.”

Separately, Bank of America (BofA) Global Research said on Tuesday that a rise in summer travel and falling spare capacity could send oil prices to $120 a barrel.