I forecast the price of oil could surpass 200 USD per barrel, both for the crude and Brent sorts in the next 3 years on the war in Ukraine.
Russia produced 10.5 million barrels of oil in 2020 which was 10.5 % of the total production and roughly that percentage of total consumption.
And the biggest oil producing countries in the world usually find it very difficult to increase output in the short-term, this being 2-3 years. This is because oil exploration and subsequent production pending on finding oil reserves rich patch is a slow, cumbersome, painful and expensive process.
Only the US shale oil producing companies are flexible, but not to a to great an extent.
Scenario analysis:
Russia produced 10.5 million barrels of oil in 2020.
Several scenarios, because of the Russian Ukraine war and my forecast for oil price developments:
1) Russia loses 1.5 million oil production -> the price of oil rises to 125 USD on average in the next 2 years. 17 % probability
2) Russia loses 2.5 million barrels oil production -> the price of oil rises to 145 USD on average in the next 2 years. 37 % probability
4) Russia loses 4.5 million barrels oil production -> the price of oil rises to 200 USD on average in the next 2 years. 11 % probability
5) Russia loses 5.5 million barrels oil production -> the price of oil rises to 227 USD on average in the next 2 years. 7 % probability
6) Russia loses 7.5 million barrels oil production -> the price of oil rises to 270 USD on average in the next 2 years. 1% probability. Nightmare scenario.
Personally, I believe the price of oil, both the crude and brent sorts, will average 170 USD in the next 2 years. The volatility or dispersion of my forecast, however, is huge.
The distribution of my forecast is heavily fat-tailed.
The stocks of oil majors like Exxon Mobil, Chevron, Royal Dutch Shell, BP, Total, midsized companies like Petroleo Brasileiro and Occidental Petroleum and smaller shale patch oil producers like Marathon Oil Corporation should significantly outperform the Standard and Poor's 500 stock market index.
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