LONDON: Crude oil prices once again could return to $100 a barrel in 2023 as Chinese demand recovers after COVID curbs were removed and supply growth is limited by a lack of investment.
As demand recovered from COVID-19 lockdowns in many parts of the world and Russia’s invasion of Ukraine raised concerns about supply, oil reached $100 for the first time since 2014. However, amid concerns of a global recession, Brent crude ended the year close to $86.
If the price of oil were to rise back above $100 for a long time, it would bring in more money for the economies of the OPEC members, whose main source of income is oil revenue, and it would be a setback for industrialized economies trying to control interest rates and inflation.
In October, the Organization of the Petroleum Exporting Countries and their allies, including Russia, agreed to cut production by 2 million barrels per day, or about 2% of global demand, to help the market.
After the volatility of 2022, when Brent crude nearly reached its all-time high of $147 shortly after the Ukraine war began, so far in 2023, Brent has increased slightly to just over $86, aided by Russia’s plan to reduce output in March.
Oil price forecasts and price targets are not published by OPEC and OPEC+. Ministers and officials from OPEC and OPEC+ are frequently reluctant to discuss price direction publicly.
In rare public comments on Feb. 8, Iran’s national representative to OPEC, Afshin Javan, stated that oil may rebound to around $100 in the second half of the year and that OPEC+ was likely to maintain its current output policy at its next meeting. This caused oil prices to fall by one percentage point.
About the possibility of $100 oil, Reuters spoke privately with officials from five additional OPEC nations. Three of them predicted that oil prices would rise rather than fall in 2023, and two of them predicted that prices would reach $100 once more.
According to one of the OPEC sources, “It should be said that the shadow of the energy crisis will continue to dominate the world and the general trend of global oil prices will increase.”
“In my opinion, it is not unexpected for Brent crude oil prices to return to above $100 at some point in 2023.”
At the moment, the industry is in agreement that prices will go down in 2022. 30 economists and analysts polled by Reuters predicted that Brent would average $89.37 per barrel in 2023, down from $99 in 2022. Goldman Sachs reduced its Brent forecast for 2023 to $92
After the country was estimated to have reported a slight decline in oil demand for the first time in years in 2022, the sudden lifting of China’s COVID restrictions is likely to boost oil demand growth in 2023.
According to OPEC sources, prices are also supported by a lack of investment in expanding supply. According to the group’s own figures and other estimates, OPEC members are pumping almost 1 million bpd less than their target.
Non-OPEC producers are still expected to pump more in 2023, but their increase of 1.5 million barrels per day falls short of the expected 2.2 million barrels per day increase in demand, according to OPEC forecasts.
Another OPEC source stated, “Even with the additional supplies coming from here and there, the market will still witness a lack of supply compared to the demand.” The market is under more upward than downward pressure.”
The OPEC+ cut, which was agreed upon in October, applies throughout the entire year 2023. On February 5, Fatih Birol, the head of the International Energy Agency, urged producers to rethink their output policies “if demand goes up very strongly.”
They have no plans to change course at this time. At a meeting on February 1, important ministers from OPEC+ endorsed the current policy, and a source said that the main message was that OPEC+ would stick with it until the deal was done.
After Russia announced output cuts, two OPEC+ delegates told Reuters on Friday that OPEC+ will not take any action.
Even though economic growth prospects were the main risk, another OPEC source agreed that prices could reach $100 in 2023.
He stated, “Everything will depend on the economy; if China improves, of course, we may return to $100.” He added that a crude price of between $85 and $100 is “good for everyone.”
The International Energy Agency (IEA), which represents 31 nations and includes the United States, did not immediately respond to a request for comment on Friday regarding the implications of $100 crude oil prices for its members. Birol stated in November that $100 oil posed a real threat to the global economy.
In addition to the possibility of a recession, OPEC sources who anticipate lower prices in 2023 stated that it was uncertain how much demand would come from China and whether it would again impose lockdowns to contain COVID outbreaks.
The second OPEC source who anticipates lower prices this year stated, “There are still uncertainties about economic growth, inflation, and China’s reopening.”
