What is the forecast for oil prices in 2023? 

“A century ago, petroleum – what we call oil – was just an obscure commodity; today it is almost as vital to human existence as water.” – James Buchan. 

Oil really does make the world go round – and much like water, we’re willing to pay any price for it. From keeping our car wheels turning to heating our homes and producing our electricity, the production and consumption of oil has come to underwrite modern living. We are in the midst of a volatile global economic situation, within which all the players are jostling for the Texas tea. The European Union are slated to ban imports of Russian seaborne crude, and the White House is said to be mulling further releases of its reserve stocks following friction with its Saudi partners. In the context of this turbulence, we look ahead to the future of oil prices in the year to come. 

The Energy Information Administration, EIA, is an agency of the US government. Its short-term energy outlook, published November 8th, gives a comprehensive oil price forecast. They predict a fall in US energy consumption in 2023, owing to an expected decline in GDP. They predict that retail heating oil will continue to average more than $5 per gallon for the remainder of this year – and that the price of distillate fuel will fall in the first half of the next in line with the projected economic downturn. They expect brent to be “lower on an annual average basis in 2023 than in 2022”, but that the price will rise in the second half of 2023. 

The EIA raises concerns about the distillate market, referencing the EU’s slated decision to ban the seaborne import of petroleum products from Russia. This latest sanction would mark the most serious to date and have serious knock-on effects on the oil price. The restrictions will take effect forth from the 5th of December 2022 for crude oil and from the 5th of February 2023 for other petroleum products. The IEA expects these measures will prompt Russian crude oil output to fall by 1.4 million barrels per day. 

In response to concerns that the prohibition will provoke a surge in oil prices, the G-7 countries are mulling the prospect of a cap on the price they are willing to pay for it. The EU is also thought to be working toward a cap, with Reuters reporting on a likely cap of $60 per barrel for seaborne crude, though POLITICO reports the negotiations are deadlocked.

A poll of 38 economists by Reuters found that US crude was set to average $87.80 in 2023. However, their analysts could not provide a consensus on the likely effect of EU sanctions, though Matthew Sherwood, lead commodities analyst at the EIU told the publication that:

“The EU ban will mean that an uneasy balance will characterise the market from the first quarter, which will be supportive of prices in the 80s or even higher.”

 OPEC, the Organization of the Petroleum Exporting Countries, is set to meet this week to configure their production policy moving forwards. Given that one of its chief members, Saudi Arabia, not long ago rebuffed the amorous advances of the Biden administration, it’s unlikely consumers are set to benefit from the upcoming council.  

CNBC cited energy analysts who predict that the meeting of the 23 oil-producing nations will likely lead to further reductions in output. As Claudio Galimberti, senior vice president of Rystad, told the publication: 

“OPEC+ has been rumoured to consider a cut on the basis of demand weakness, specifically in China, over the past few days. Yet, China’s traffic nationwide is not down dramatically,”. 

The oil cartel, which has already committed to slashing production by 2 million barrels per day, is widely expected to shore up its bottom line with its latest commitments. It also bears remembering that Russia is one of the 27 member states who make up the organisation. 

Goldman Sachs’s Global Head of Commodities, Jeff Currie, has said that the anticipated move by OPEC, in concert with looming sanctions and an expected Chinese downturn has prompted the firm to revise its oil price forecasts. Accordingly, Goldman now expects oil to climb to as high as $110 a barrel next year. 

A slump in the Chinese economy is singled out as especially deleterious. Currie said it was, in terms of oil pricing, “worth more than the OPEC cut for the month of November”.

In the year to come, the price of oil will continue to undergo turbulence. Though the price will vary, OPEC’s unwillingness to play ball and the extant conflict in Ukraine will serve to exert upwards pressure on the price. An expected lull in the Chinese economy will relieve demand-side pressures, but oil producers are going to be reluctant to accept lower prices – and may slash their production even further to keep them stable. 

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Mario Laghos

Mario Laghos is a journalist. His work has appeared in the European Conservative, Whynow, the Critic, and the Daily Express.

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