Oil is being tamed by recession fears but Russia's 'weaponization' of commodities could push prices higher again, RBC's commodities chief says

• Oil prices have been tamed by recession fears, RBC's global head of commodities Helima Croft said.
• Prices could spike again though depending on how Russia responds to European sanctions.

Oil prices are being contained by fears of a recession, but that could change in the second half of this year, as Western nations risk retaliation from Russia in advance of European sanctions kicking in, RBC global commodities head Helima Croft said.

"My bet is that we're going to see further Russian action in the back half of this year that will push oil prices higher," Croft said in an interview on CNBC on Monday, speculating that Russia would follow up with its threats of retaliation as western countries have shunned oil supplies from the country in response to its invasion of Ukraine. "I think the Russians are going to get more aggressive going into December as European sanctions take effect.

Russia has already cut off energy supplies to several European nations. On Monday, the country shut off flows to Germany via the Nord Stream 1 pipeline. The move was to allow for schedule maintenance, but there are fears that Russia may permanently shut off gas flows through.

The shutoff comes in advance of Europe's end-of-year sanctions on Russian gas and oil products, which are expected to take as much as 2.4 million more barrels of Russian oil off the market, Croft said.

That shortage risks an energy crisis as supplies run low and prices soar even higher. In the US, natural gas was driven past $9 per million British thermal units in May, its highest price since 2008.

Although Croft said economic fears could keep prices somewhat lower, she said that the price of oil in the second half of the year would largely be determined by how Russia would respond as European sanctions kick in. "The question is, does Russia weaponize commodities in advance of those sanctions?" she said.

The US has scrambled to avoid a spike in oil prices, with President Biden approving a historic release from the country's Strategic Petroleum Reserve and imploring OPEC+ nations to up their production of oil.

The US and its allies are also exploring a price cap on Russia oil of $40-$60 per barrel, with talks underway for India and Japan to support the move, Bloomberg reported. However, industry experts have expressed skepticism, as a price cap would require cooperation from Russia and Russian allies, who are currently getting steep discounts on Russian crude amid western sanctions.