Investment bank Citigroup is predicting oil prices to tumble by the end of the year if the world slips into a recession.
“For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions,” the bank said. “But oil prices fall in all recessions to roughly the marginal cost.”
Brent crude was trading at around $103 per barrel as of 12:11 a.m. EDT on July 5. For Citi’s prediction to come true, oil has to fall over 36 percent from current prices in 2022 and by more than 56 percent to hit the 2023 forecast.
Meanwhile, analysts at JP Morgan are predicting oil to more than triple in price if Russia decides to cut down output. In a note, analyst Natasha Kaneva warned that oil could increase to $380 per barrel if Moscow reduces oil output by 5 million barrels per day. In case of a 3 million barrel-per-day decrease, prices could hit $190 per barrel.
US Gas PricesWhile the international oil supply affects U.S. gasoline prices, American consumers have to deal with another issue in the coming months that could have a major impact on fuel costs—the hurricane season.
In recent years, hurricanes are known to have temporarily knocked off processing capacity in the U.S. Gulf Coast, where 47 percent of the country’s motor fuel is produced.
To make matters worse, five oil refineries were shut down during the COVID-19 pandemic. One refinery has suffered extensive damage due to storms. Refinery utilization at present is close to 95 percent, indicating strong demand.
In 2017, when Hurricane Harvey flooded the Texas coast, the state’s refining capacity was temporarily shut down. Retail gasoline prices jumped 29 cents in the aftermath. In 2005 when Hurricanes Katrina and Rita disrupted refining capacity at plants in Texas, Louisiana, and Mississippi, gas prices jumped 46 cents.
According to data from the American Automobile Association (AAA), regular gasoline averaged $4.80 per gallon on July 5, up from $3.13 per gallon a year ago but slightly down from the $5.016 per gallon record high hit last month.