Oil prices could rise to $120 a barrel on further supply cuts, and that would bring economic growth to a halt next quarter, JPMorgan says

Men work on an well pump near Sweetwater, Texas, Dec. 23, 2014.LM Otero/AP
  • Brent crude prices could potentially hit $120 a barrel, JPMorgan warned.

  • That's assuming oil supply will face even more pressure in the coming months.

  • Prices that high could bring global economic growth to a near standstill.

Oil prices could soar back into the triple-digits if crude supply faces more pressure – and that could bring global economic growth to a near standstill, according to JPMorgan.

In a note on Tuesday, the bank's strategists noted oil prices have jumped 27% over the past month to trade at a 10-month high.

Around 25% of that change is attributable to higher-than-expected oil demand, while 75% is attributable to major supply cuts, such as from OPEC+, which has repeatedly slashed its crude production over the past year.

If prices maintain those levels, they will likely drag down global GDP growth by 0.5 percentage point over two quarters.

For its part, JPMorgan sees Brent crude easing to around $86 a barrel by year's end. But oil prices could tread higher and drag down the economy even more if oil supply faces continued pressure, strategists warned.

"There is also a concern that the recent supply cuts are not finished, and the price of oil could jump much further to as high as $120/bbl," strategists said, a level that equates to a 60% jump through the second half of the year. "We estimate that if this were to happen in the coming weeks and, were attributable entirely to supply cuts, the global economy would slow to a near stall next quarter."

Prices that high could potentially push global inflation to around 6% through the end of the year, and hit global GDP by 1.3% year-per-year over the next two quarters, strategists said.

"Indeed, the cumulative 60% jump in the price of oil would mark the type of shock usually only seen ahead of recessions," the bank added.

Some US market commentators have already flagged rising oil prices as a major concern for the economy. The rising cost of gasoline, which is produced from oil, was the largest contributor to inflation last month, the Bureau of Labor Statistics said. Overall consumer prices rose 3.7% year over year, above the expected 3.6%.

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