Crude oil could hit $125 a barrel as Russia's reaction to a US-led price cap threatens to squeeze supply, UBS says

Russia's response to a US-led price cap plan could tighten the global market even further, according to a top commodities strategist.

If the G7 nations go ahead with the price cap, Moscow will cut its oil production.

At a time when the oil market is already facing a supply squeeze, Dominic Schnider said that another 1 million barrels a day could be pulled.

"If you force us to accept the price cap, we're not going to deliver crude to you," Schnider said in an interview with CNBC.

There is an additional 1 million barrels at risk from a global supply perspective.

Prices will go up as we get more draws. It's simple. He said that they were looking at $110 to $125 for crude oil.

Concerns that a recession and a COVID-19 break in China will hit demand led to a 2% decline in the price of oil. The US benchmark crude futures were down.

Canada, France, Germany, Italy, Japan, the UK, and the US are among the nations that have agreed to set a price cap on Russian oil.

China and India are big buyers of Russian crude, so they will have a hard time persuading them to join the price cap plan.

The producer group last week decided to cut output by 2 million barrels a day and the US is caught up in the dispute.

The move is seen as a snub to the Biden administration's efforts to stem price rises for oil, and therefore US gasoline, and led to the White House accusing OPEC+ of being aligned with Russia.

The G7's push to impose a Russian oil price cap by the end of the year is more difficult now that Schnider agrees that the OPEC+ cuts will push oil prices higher.

The group is still ironing out the details of the price cap, but officials have floated a range of $40-$60 a barrel.

It's hard to understand. Europe still wants to get rid of some things. It could be between two and a half and three million barrels. These barrels need to be found. Schnider said that it was number one.

How is that going to work out in the end? He said the Russians were clear.

He said that the US has some options to help ease the tightness in the market, including tapping into its strategic oil reserve.