Crude oil prices may shoot up to $110 a barrel in 2023

Brent crude oil prices may rise 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 touched earlier in 2022 as geopolitical concerns took centre stage amidrising demand.

“Looking ahead, Brent oil price growth will decelerate even more in the coming quarters.

“This comes even as our global oil strategist expects a rise in oil prices back to $110 a barrel by the second half of 2023.

“The implied year-on-year (YoY) growth rates will still be much lower than the peak this year,” wrote Chetan Ahya, chief Asia economist at Morgan Stanley, 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 now.

This is despite Opec+ cutting supply, International Energy Agency (IEA) lowering 2023 global demand expectation, and China’s reopening hopes getting dashed after fresh spike in Covid cases.

Back home, the price of the Indian basket of crude oil 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 million barrels a day (mbd) in 2023, down from its previous estimate of 1.7 million 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 mbd for the remaining part 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 co-authored note.

Their price forecast of $90 a barrel rests on the belief that Opec+ will do 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.

This will come as Russian production fully normalises and a combination of conventional (Brazil, Norway and Guyana) and non-conventional (US, Canada and Argentina) projects supply an additional 1.6 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.

“This will come 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.

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