Rising global interest rates are expected to take their toll on the world economy in 2023. This is expected to keep a lid on crude oil prices, its products and natural gas. The drop in demand is expected to drive up inventories, which may be enough to offset any attempts by Russia to cut output.
Meanwhile, China’s oil demand restrictions, which were eased in December, is likely to limit demand recovery hopes. China needs to open its economy completely to drive up demand. Until that happens, the demand picture will remain clouded. The world’s top oil importer and second-biggest consumer in 2022 posted its first drop in oil demand in years.
Additionally, while China’s oil demand is expected to recover in 2023, a recent surge in COVID-19 cases means demand will remain below average for at least the first quarter of the year.
As far as crude oil prices are concerned, a survey of 30 economists and analysts forecast Brent would average $89.37 a barrel in 2023, about 4.6% lower than the consensus in a November survey. U.S. crude is projected to average $84.84 per barrel in 2023.
Rising U.S. crude oil inventories will mean there will be plenty of oil around for gasoline and distillate refining. Additionally, a drop in inflation amid rising rates should also weigh on prices for products.
Natural gas demand is expected to fall in 2023 and production is expected to rise. These factors should keep a lid on prices.
Don’t Forget the Wildcards
There could be a few wildcards in 2023 that may lead to heightened volatility – Rate hikes by the major central banks could lead to a global recession, the war in the Ukraine could escalate by expanding to other countries or the war between Russia and Ukraine could come to an end.
A global recession could be devastating to prices. Demand would tumble and supply would rise. Although this could prompt OPEC+ to trim production.
An escalation of the war could drive prices higher if global supplies are reduced and Europe continues to demand U.S. crude oil, products and natural gas. But this would also increase the odds of a long recession.
Prices are likely to stabilize if the war ends, but may not rally considerably until the Western world decides what to do about Russian crude oil and natural gas production. Russian output could either flood the market, leading to lower prices, or Western nations may decide to punish Russia by forbidding it to release supply.
Meanwhile, China’s oil demand restrictions, which were eased in December, is likely to limit demand recovery hopes. China needs to open its economy completely to drive up demand. Until that happens, the demand picture will remain clouded. The world’s top oil importer and second-biggest consumer in 2022 posted its first drop in oil demand in years.
Additionally, while China’s oil demand is expected to recover in 2023, a recent surge in COVID-19 cases means demand will remain below average for at least the first quarter of the year.
As far as crude oil prices are concerned, a survey of 30 economists and analysts forecast Brent would average $89.37 a barrel in 2023, about 4.6% lower than the consensus in a November survey. U.S. crude is projected to average $84.84 per barrel in 2023.
Rising U.S. crude oil inventories will mean there will be plenty of oil around for gasoline and distillate refining. Additionally, a drop in inflation amid rising rates should also weigh on prices for products.
Natural gas demand is expected to fall in 2023 and production is expected to rise. These factors should keep a lid on prices.
Don’t Forget the Wildcards
There could be a few wildcards in 2023 that may lead to heightened volatility – Rate hikes by the major central banks could lead to a global recession, the war in the Ukraine could escalate by expanding to other countries or the war between Russia and Ukraine could come to an end.
A global recession could be devastating to prices. Demand would tumble and supply would rise. Although this could prompt OPEC+ to trim production.
An escalation of the war could drive prices higher if global supplies are reduced and Europe continues to demand U.S. crude oil, products and natural gas. But this would also increase the odds of a long recession.
Prices are likely to stabilize if the war ends, but may not rally considerably until the Western world decides what to do about Russian crude oil and natural gas production. Russian output could either flood the market, leading to lower prices, or Western nations may decide to punish Russia by forbidding it to release supply.