$120 a barrel and $5 a gallon? How oil and gas prices could change based on Putin’s next moves

February 22, 2022, 1:25 PM UTC

With extreme tightness in the oil markets, any disruptions in oil’s supply or demand has huge knock-on effects for the price of oil—and the price of gas at the pump. Enter Putin…into Ukraine.

Brent, the global benchmark for oil, closed in on $100 a barrel Tuesday, trading at $99.19 at 4 a.m. ET on the back of news that Putin ordered Russian troops into two breakaway regions of Ukraine—Donetsk and Luhansk—after recognizing their independence.

Gasoline futures and natural gas also climbed, making energy the lone Europe stock sector in the green at 9:30 a.m. this morning in London.

Russia’s entry into the Ukrainian regions furthers geopolitical tensions that have already propelled oil prices higher in recent weeks. 

“Benchmark crude prices rose by more than 15% in January to cross the $90 a barrel threshold for the first time in more than seven years,” the International Energy Agency said in its February 2022 oil market report. “Global oil stocks at multiyear lows and dwindling OPEC+ spare capacity have left the market with only a small cushion.”

It will also inevitably have knock-on effects for gas prices in the U.S., which have already risen from an average of $2.64 a gallon a year ago to $3.53 today, according to the AAA.

Now, as the world awaits Russia’s next moves, oil companies and traders watch for more tightness in the oil market—something that would greatly shock oil and gas prices as well. 

No war: Around $80 a barrel

The best-case scenario is a de-escalation of tensions at the Ukrainian border in which Russia pulls back the troops it deployed in Donetsk and Luhansk, Putin opens up peace talks with Russia’s neighbors, and normality and order return to the border.

J.P. Morgan macroeconomic data estimates such a de-escalation would lead oil into a not-insignificant fall from its current price: “A de-escalation of tensions with Russia and a successful resolution of the Iran deal should push oil prices down toward our $86 barrel estimate of fair value.”

Crude oil prices at or below their current level would have a similar effect on U.S. gas prices, likely reversing the rise in recent weeks. Escalating tensions have pushed the price of a gallon of gas up by three cents from a week ago, and 20 cents from a month ago, according to AAA. 

In the context of energy supplies, a de-escalation could allow the Nord Stream 2 pipeline—a controversial pipeline under construction that would supply natural gas to Germany from Russia—to be authorized. Germany halted the authorization of Nord Stream 2 on Tuesday after Russia deployed troops to Ukraine.

Small war: $100

However, most strategists believe that oil prices will go higher—above $100 a barrel—as tensions continue to escalate.

“Oil prices are once again marching upwards, as the optimism of a Biden-Putin meeting fades, while OPEC+ is continuing to struggle to hit its quotas, which have largely created the severe global energy deficit,” Pratibha Thaker of the Economist Intelligence Unit told Reuters.

Oil prices were already rising before the border tensions, as weak supply from OPEC+—combined with the cartel’s approval of only moderate output increases—met robust demand from a world awakening from COVID-19 restrictions.

Commonwealth Bank analyst Vivek Dhar said in a note: “We see Brent oil tracking in the $90 to $100 a barrel range in the short term, but if tensions escalate between Russia and Ukraine, we could see Brent top $100 a barrel quite easily.”

At the pump, some analysts predict that if Russia’s moves lead to U.S. sanctions, gas prices in the U.S. could rise by 50 cents a gallon, according to ABC News

Big war: $120

A worst-case scenario is a major conflict between Russia and Ukraine—one perhaps involving other actors and leading to Russia cutting off supplies—which could push the price of oil to beyond $120.

J.P. Morgan’s macroeconomic data analysis again predicted: “A confrontation that disrupts Russian supply has the potential to push oil prices much higher—perhaps to $120 a barrel even in the face of an Iranian deal.” 

Oil will “certainly” hit $120 a barrel if Russia invades Ukraine, David Roche, president and global strategist of Independent Strategy, told CNBC, adding that the global economy will be “radically altered.”

“I think if there was an invasion of Ukraine and there were to be sanctions which impeded either Russia’s access to foreign exchange mechanisms, messaging systems, and so on, or which prevented them from exporting their commodities, either oil or gas or coal, I think at that point in time you would most certainly see oil prices at $120,” Roche said. 

Such a situation could send gas prices above $5 in some states—or even close to $6 in parts of California, according to NBC News.

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