Despite a fall into the tail-end of 2022 after a strong start to the year, oil analysts point to pent-up demand, new waves of COVID-19, production cuts, and more as creating scenarios of a market surplus that will create a $90-$110 oil price in 2023.
After an initial spike in prices caused by the Russia/Ukraine brawl, oil prices have come under pressure over the past few weeks as Russia’s oil continues to penetrate the global market, tightening monetary policies across Europe as well as reducing demand as a result of China’s zero tolerance to new COVID threats.
Despite these challenges, most forecasters expect benchmarks to top $100 sometime next year as short-term oil price forecasts remain persistently bullish in 2022.
For instance, Bank of America strategists believe fears of weaker growth have dragged oil lower, as well as other commodity markets, but a US Fed pivot could bring demand back and send oil prices higher.
“With the interest rate curve now fully inverted, Brent may need a Fed pivot to turn the corner,” the Bank of America wrote in a note on Monday.
The second key factor that could push Brent crude higher is China’s continued reopening efforts, analysts said. Demand risks from a delayed China reopening could keep oil prices muted, but if Beijing accelerates the process, it would present upside for Brent crude.
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“In sum, Brent may need a Fed pivot and a successful China reopening to turn the corner, but prices could bounce up quickly above $90/bbl if these two conditions are met, especially now that spec positioning has turned neutral,” the strategists maintained.
Goldman Sachs has forecast $110 per barrel oil for next year but acknowledges that uncertainty still prevails.
The Wall Street bank in a note cut its Brent oil forecasts for the first and second quarter of 2023 to $90 and $95 a barrel from $115 and $105 per barrel respectively.
The bank said there was less risk of oil prices spiking this winter with China consuming less than previously expected, Russia exporting near pre-war levels, and production issues easing in Kazakhstan and Nigeria.
A group of some of the world’s most powerful oil producers is highly likely to take further measures to stem a price decline and try to balance the market, according to Goldman Sachs.
Led by Saudi Arabia and Russia, OPEC+ slashed output by a record 10 million barrels per day in early 2020 when demand plummeted due to the Covid-19 pandemic. The oil cartel has since gradually unwound those record cuts, albeit with several OPEC+ countries struggling to fulfill their quotas.
JP Morgan is also forecasting a $90 oil for 2023, down from its earlier forecast of $98, “on the grounds that Russian production will fully normalize to pre-war levels by mid-2023”.
“Entering 2022, our view was that the global oil market will remain tight, with Brent averaging $90/bbl for the year,” JPM notes.
“We now forecast an $8 lower 2023 average price, on the grounds that Russian production will fully normalize to pre-war levels by mid-2023. Despite more pessimistic balances over the next few months, we expect Brent to average $90/bbl in 2023 and $98/bbl in 2024,” JPM adds.