Oil Prices Are Set To Rise Throughout 2023

Crude oil prices started this week with a loss. The reason for that initial weekly loss came down to overall global economic growth pessimism and expectations that the U.S. Federal Reserve will continue raising interest rates, making the dollar more expensive and sapping demand for dollar-priced crude. But by the end of Monday, oil prices had rebounded and were trading higher, extending the rally into morning Asian trade on Tuesday. The reason—comments from attendees at the CERAWeeek industry conference—suggested that supply will tighten before too long. Just another week in oil, some would say, and indeed, oil prices fluctuate constantly, to such an extent it is extremely difficult to predict them with any accuracy, especially over a shorter period of time. Yet it does bear pointing out that most forecasters seem to expect higher prices for oil later this year. There appears to be broad consensus on this. Some, such as Forbes’ Bill Sarubbi, note the technical data of oil trading to suggest prices are going to go higher. In a recent story, Sarubbi said that historical data shows oil prices tend to rise between March and May most of the time, so it makes sense to expect them to rise this year as well. Others, such as Refinitiv, the data analytics firm, single out two factors that will drive prices on the supply and demand sides, respectively: Russia and China. And Refinitiv expects Brent crude to rise above $100 per barrel by the end of the year and average $90 for the full year 2023. Oil demand this year will surge by 2 million barrels daily, Refinitiv said at a recent industry event, and China will account for half of that. On the other hand, Russia’s supply will tighten this month and maybe remain tight, adding upward pressure to prices. That’s despite prices shaking off the initial shock and surge after the G7/EU price cap on Russian crude and declining more or less consistently since then, stuck in a narrow range around $80. Then there is Goldman Sachs, whose senior energy economist recently reiterated the bank’s forecast for higher oil prices, explaining it with the lag between an oil market shock—especially a supply shock—and the effect of the shock manifesting in futures prices. Spot market shocks, according to Daan Struyven, as quoted by the Financial Times, have an immediate impact on prices, as one would expect. Futures market shocks, on the other hand, take months to manifest and affect prices. Struyven concluded this after looking at data for spot demand shocks, such as disappointing economic data from China or the United States, spot supply shocks, such as natural disasters, future demand shocks, such as fiscal stimulus announcements, and future supply shocks, such as OPEC’s announcements to cut production. Indeed, just this week, there was a spot demand shock when China said it would aim for 5-percent economic growth this year, and the figure was taken to be disappointing, driving oil prices down. That was before CERAWeek delegates such as Chevron’s Mike Wirth and Gunvor’s Torbjorn Tornqvist warned supply is tight—a potential future supply shock—which drove prices higher.