- Goldman Sachs still expects oil prices to hit $125 a barrel in 2023.
- The bank is bullish on the commodity despite the G7’s latest plan to cap Russian crude prices.
- Moscow may retaliate against the cap by refusing to export oil to G7 countries, strategists warned.
Oil prices are likely to soar to $125 a barrel in 2023, despite the G7’s latest agreement to set a price cap on Russian crude, Goldman Sachs said.
Any price cap will be “bearish in theory, bullish in practice” for oil prices, due to Moscow potentially responding by slashing exports to G7 countries, the bank warned on Friday.
“Consistent with actions taken in the natural gas market, Russia could opt to retaliate, cutting G7 buyers off and shutting in production, thereby elevating global prices and its own revenues even higher,” a team of strategists led by Goldman Sachs’s head of energy research, Damien Courvalin, said. “Today’s announcement does not change our bullish forecast for oil prices.”
The G7 – which includes Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States – announced Friday that it would implement a price cap on Russian oil by December 5.
Finance ministers hope the cap will reduce Russia’s income from crude exports, without cutting off western countries from a major energy source as fuel prices continue to surge.
But Goldman warned that any price cap would likely work differently in practice – with Russia likely to hit back at sanctions.
“Conceptually, such a price cap – if fully and successfully implemented – would allow Russian oil to flow while simultaneously achieving Europe’s aims of limiting Russian oil export revenues,” Courvalin’s team said. “The key risk to this policy, however, is the potential for Russian retaliation, which would turn this into an additional bullish shock for the oil market.”
Russia has already fought back against western sanctions by upending European natural gas markets. It has halted gas flows through key pipelines like Nord Stream 1, causing benchmark prices to soar over 200% since June.
European officials have accused Russia of using its energy supplies to try to stoke an economic crisis on the continent – with France’s energy transition minister accusing Moscow of using gas “as a weapon of war” last week.
The Kremlin said Friday that Russia will stop exporting oil to any country that attempts to impose a price cap.
“Countries who join this potential price cap will no longer be among the recipients of Russian oil,” spokesman Dmitry Peskov told reporters. “We simply will not cooperate with them as regards oil on such non-market principles.”
Brent crude prices climbed 2.70% to over $95.50 a barrel Monday, while WTI crude was up 2.51% to just over $89 a barrel at last check.
Read more: Russia has slowed flows of gas to Europe to a trickle – and the energy crisis could drag on until 2025, Goldman Sachs says