Q1 Oil Price Forecasts

Due to major supply risks stemming from the Russia/Ukraine crisis, multinationals should factor a higher oil price outlook into their business planning and strategic assumptions. Although high oil prices will be a boon to firms serving the oil sector and for firms operating in major oil-producing countries (outside Russia), the impact on most companies will be in the form of higher input costs. In addition, an extreme degree of uncertainty about the oil outlook necessitates flexibility in business planning.


The war in Ukraine and retaliatory sanctions on Russia have driven a surge in the price of oil, with Brent crude recently crossing US$ 100/barrel for the first time since 2014. Most of the price increase reflects market expectations of potential risks to Russian supply stemming from further sanctions targeting the energy sector, or production disruptions due to energy infrastructure damage.

However, some supply disruption has already occurred, following harsh financial sanctions imposed by the US, EU, and several other countries. Oil traders report difficulties transporting Russian oil as they navigate a complex web of sanctioned entities, ports, suppliers, and banks. Benchmark price increases likely reflect some of these disruptions, but prices are likely to rise further in the next month.

Our View

Our oil price forecasts reflect several assumptions about the supply and demand outlook in a highly uncertain environment. They also weigh the various upside and downside price risks. However, the outlook depends crucially on political decisions by major leaders in the next several weeks, which translates to high price volatility and high forecast uncertainty.

On the supply side, we assume the recently imposed sanctions on Russia will persist for the medium term and will likely be followed by further rounds of sanctions focused on the financial sector. These moves will hobble Russian production and energy transport, but will not result in a complete collapse in Russian supply. Self-sanctioning by oil majors and others will exert upward pressure on oil prices due to a shift in demand away from Russian oil and toward strained global supplies. Some downward pressure on prices will likely arise from a multilateral, coordinated release from strategic petroleum reserves amounting to 60–100 million barrels at some point in H1 2022. We assume a fresh nuclear deal with Iran will bring a modest volume of new supply into the market in late 2022. On the demand side, price increases will likely be curbed by a modest drop in oil demand stemming from air travel disruptions.

But many, many upside price risks weigh on the outlook. Oil prices could rise much further if the US and allies impose even harsher sanctions that eliminate energy carve-outs; if conflict moves to the Black Sea, which could threaten transport not only for Russian oil but also for oil supplied by Azerbaijan and Kazakhstan; if all-out war damages the Druzhba oil pipeline, which runs through Ukraine; or if Russia imposes export controls as a retaliatory act (an unlikely, though possible, event). Price increases may be curbed by further increases in supply from OPEC or the US, but political and technical barriers to those supply increases remove these possibilities from our base case. Lastly, a surge in oil prices past US$ 130/barrel would likely result in a rapid price decline later in 2022 due to demand destruction and a major economic slowdown.

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