Crude oil prices can rise up to $110 a barrel in 2023, say analysts

Brent crude oil prices can rise up to $110 a barrel in 2023, up nearly 33 per cent from the current levels, said analysts at Morgan Stanley in a recent note. This is, however, lower than the peak level of nearly $127 a barrel hit earlier in 2022 as geopolitical concerns took center stage amid rising demand. 

“Looking ahead, Brent oil price growth will decelerate even more in the coming quarters; even as our global oil strategist expects a rise in oil prices back to $110 a barrel by the second half of 2023 (H2-2023), the implied YoY growth rates will still be much lower than the peak this year,” wrote Chetan Ahya, chief Asia economist at Morgan Stanley said in a recent co-authored note.

Brent crude oil prices have slipped nearly 15 per cent in the last few weeks, from a peak of around $98 a barrel to a little over $83 a barrel now despite OPEC+ cutting supply. The fall in prices was mostly led by International Energy Agency (IEA) lowering 2023 global demand expectation, and China’s reopening hopes getting dashed after fresh spike in COVID cases, analysts said. Back home, price of the Indian basket of crude oil, too, hit a 10-month low of $88.6 a barrel.

Earlier in November, the IEA lowered its global oil demand growth estimate for 2023 on weak economic growth in China, Europe’s energy crisis and a strong dollar. It now expects oil demand to grow by 1.6 mbd in 2023, as compared to its previous estimate of 1.7 mbd. The decision by OPEC+ to lower production by 2 mbd and an EU ban on Russian crude will reduce global oil supply by 1 million bpd for the remainder of this year, the IEA said.

Meanwhile, analysts at JP Morgan expect Brent crude oil prices to average lower in 2023 at $90 a barrel from their earlier estimate of $98 a barrel. 

“Despite more pessimistic balances over the next few months, we expect Brent to average $90 a barrel in 2023 and $98 per barrel in 2024. Unlike this March, when our forecast for both 2022 and 2023 was below consensus because we expected more Russian supply and less demand, our current 2023 and 2024 forecasts are well above the forward curve,” wrote Natasha Kaneva, head of the global commodities strategy team at JP Morgan in a recent coauthored note.

Their price forecast of $90 a barrel rests on the belief that OPEC+ alliance will do the heavy lifting to keep markets balanced next year. They also expect supply to grow at 30 per cent above the pace of demand in 2023, as Russian production fully normalises and a combination of conventional (Brazil, Norway, Guyana) and non-conventional projects (US, Canada, Argentina) supplies an additional 1.6 million barrels per day (mbd). 

“To keep markets in balance, OPEC+ will need to cut another 0.4 mbd over its October quota. Despite our economists’ call for the global economy to expand at a sub-par 1.5 per cent pace in 2023, there are strong reasons to expect relatively robust, 1.3 mbd, oil demand growth next year as oil demand will be still driven by continued normalisation of services and thus support mobility fuels (gasoline, diesel, and jet),” analysts at JP Morgan said.

Opec meet on Dec 4 to decide on more supply curbs 

Organization of the Petroleum Exporting Countries (Opec) and its allies are expected to consider deeper supply curbs when they meet this weekend against the backdrop of a faltering global oil market. Discussions within the alliance have not yet formally got underway before the December 4 meeting. Saudi Arabia and partners surprised traders and drew rebuke from US President Joe Biden when they announced a 2 million barrel-a-day cutback last month. Prices have since dropped to $80 a barrel in London as the situation in China detoriates. | Bloomberg