By Julianne Geiger
June 2, 2022 - Rising energy prices and boxing Russian crude oil out of the global market risks a global recession, Bank of America's head of global commodities and derivatives research Francisco Blanch warned in a recent research note.
"Can the global economy continue to expand with tightening oil supplies? Our estimates suggest that the world can handle a total disruption of just about 2mn b/d of Russian oil without risking a global recession," the note cautioned.
In 2023, BoA sees oil demand approaching pre-Covid levels—but only if Russia's crude oil and condensate production stays at 10 million bpd and OPEC+'s crude oil output increases.
"With our $120/bbl Brent target now insight, we believe that a sharp contraction in Russian oil exports could trigger a full-blown 1980s style oil crisis and push Brent well past $150/bbl," Blanch added.
Blanch stressed that while recession risks were elevated, it was not the base case. Blanch's prediction, however, was made prior to the EU's deal that it recently struck to embargo 90% of the crude oil that it currently gets from Russia starting the end of this year.
Some industry experts expect the partial EU ban on Russian imports to send oil prices to above $130 a barrel in the short term.
GDP has typically been measured by looking at the number of cars sold or air travel. But, Blanch says, "No major economy can expand without energy. Whether the source of this energy is thermal or renewable matters less, in our view, as long as it is available."
Blanch also said that while the U.S. is unlikely to fall into a recession due to high energy prices, other countries may be more at risk.