NEW DELHI: It is not common for analysts to agree on a price target for a commodity or a stock, but this time around, the targets for crude oil vary in between the wide range of $65 a barrel and $380 a barrel.
Last week, global brokerage firm JPMorgan shocked everyone as its report estimated that global oil prices could reach a "stratospheric" $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude-output cuts.
And on Tuesday, Citigroup came out with a report saying that crude oil could collapse to $65 a barrel by the end of this year and slump to $45 by the end of 2023 if a demand-crippling recession hits the global economy.
"For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions. But oil prices fall in all recessions to roughly the marginal cost, "Citi analysts said in a note.
Oil prices tumbled Tuesday, with the US benchmark falling below $100 as recession fears grow, sparking fears that an economic slowdown will cut demand for petroleum products.
West Texas Intermediate crude, the US oil benchmark, slid 8.4 percent, or $9.14, to trade at $99.29 per barrel. The contract last traded under $100 on May 11. International benchmark Brent crude shed 9.1 per cent, or $10.34, to trade at $103.16 per barrel Tuesday.
"I don't think that (oil at $380) is likely to happen, but you have to keep in mind that something like that can happen with a very very low probability but very very high impact,"
Kotak Mahindra NSE 2.8% AMC’s MD and CEO Nilesh Shah told ETMarkets.
Navneet Damani, VP-Commodity Research at Motilal Oswal Financial Services NSE 0.30%, said the global oil market remains in a structural deficit and would need much higher prices to regain its balance, as Chinese demand is already recovering and, on the other hand, Russian oil production could fall by another 0.5Mbpd.
"Unless the war in Ukraine spills over to the rest of Europe, the next recession looks more likely to resemble that of 1990-1991 than of 2007-2008. If that’s the case, oil demand may be weakened from the downturn, but it should still see annual growth. Oil prices would drop, but they likely won’t collapse," he said.
In the meantime, Russia's former president Dmitry Medvedev said on Tuesday that a reported proposal from Japan to cap the price of Russian oil at around half its current price would lead to significantly less oil on the market and could push prices above $300-400 a barrel.
A sharp spike in crude oil prices affects India badly as it imports around 80 per cent of its crude oil requirements.