By Barani Krishnan
Investing.com -- Crude prices hit 2008 highs above $130 a barrel on Monday as the United States and Europe kept open their proposed ban on Russian oil.
Analysts warned of record highs of $150 a barrel next, although a survey suggested that Americans may already be driving less, with pump prices of fuel hitting all-time highs.
The U.S. national average for gasoline surged to $4.104 per gallon on Monday, just ahead of the previous all-time of $4.103 per gallon in 2008, before the onset of the Great Recession.
“Elevated gas costs are already starting to influence consumer behavior: Nearly a third of adults said they drove less than usual last month, and more than half of this group cited gas prices as the main reason,” economics study group Morning Consult said in a survey published Monday on the impact of runaway inflation on U.S. consumers.
“Behavioral responses to inflation, like driving less to limit gas consumption, could have secondary effects on economic activity, potentially reducing trips to restaurants or retail establishments,” Kayla Bruun, author of the survey, said. “Supply disruption related to the conflict in Ukraine is stoking further increases in global energy prices, threatening to exacerbate this trend.”
The caution by Bruun — as well as energy market experts such as Art Berman — will put a greater spotlight on weekly gasoline consumption data reported by the U.S. Energy Information Administration or EIA.
“The only realistic barrier to (the oil) price growth is demand destruction and economic recession,” said Berman. “Both are possible at current prices and probable at even higher prices.”
In its last update, the EIA reported a gasoline stockpile decline of 468,000 barrels for the week ended Feb 25, adding to the drop of 582,000 barrels in the previous week to Feb 18. Its next number, for the week ended March 4, is due Wednesday. It’s unlikely that there’ll be a massive drop this early into the data-cycle impacted by the two-week old Russian invasion of Ukraine.
But with pump prices already up 30% on the year, driving habits may be changing quicker than expected and other discretionary travel — like holiday flights to the Caribbean and Europe — may be on the decline too, said Eric Nuttall, senior portfolio manager at Canadian alternative investments firm Ninepoint Partners.
Nuttall, who’s typically bullish on oil, told an audio discussion on Twitter (NYSE:TWTR) on Friday that $130 a barrel was the likely starting point for crude prices to be “high enough to kill discretionary demand, that (make) it too expensive to go on flights and to go on road trips.” He says oil could, of course, go higher — like many other experts in the game think.
If Russian crude is banned within the United States, oil might hit $150 a barrel in the next three months, according to Damien Courvalin, head of energy research at Goldman Sachs (NYSE:GS).
Many others think $150 could happen in days, overwriting the 2008 record high of $147 and that gasoline could reach $5 on the average.
JPMorgan (NYSE:JPM) says if the disruption to Russian oil volumes lasts throughout the year, Brent could end 2022 at $185. But at that point, there could also be demand destruction of some 3 million barrels daily, as discretionary road travel or flying becomes too expensive at such prices, says JPM.
U.S. crude’s West Texas Intermediate, or WTI, benchmark settled up $3.72, or 3.2%, at $119.40 a barrel. WTI earlier scaled $130.50, its highest since July 2008.
Global oil benchmark Brent settled up $5.10, or 4.3%, at $123.21. Brent’s high for Monday was $130.89, also its highest since July 2008.
Both WTI and Brent were up almost 60% on the year.
Crude’s continued ascent will depend on whether the U.S. and Europe will go ahead with a full-monty block of Russian oil and gas.
“The original spikes were on embargo worries, but then a lot of countries came out and said they won't do it," Bob Yawger, director of energy futures at Mizuho, told Reuters, referring to Monday’s run to $130. "Western European countries are not in a position to embargo, and that's why markets are lower now as people are starting to realize it."