It’s been a volatile week for oil prices as investors weighed concerns over global growth, but City forecasters say prices could soon return to levels not seen since mid-2022.
UBS analysts said on Thursday they expect Brent crude oil prices to rebound from losses in the second half of last year to $110 a barrel in 2023, as the fallout from the war in Ukraine and “chronic” underinvestment in capacity persist.
With Brent crude oil prices currently hovering around $79.18/bbl at the time of writing, such a rise would be substantial and likely raise concerns about continued market-induced inflationary pressures from the oil market. energy for the foreseeable future.
Volatile: Oil prices soared as high as $128 following the war in Ukraine, but fell rapidly in the second half of 2022
Oil prices were initially under pressure at the start of the week before making a comeback as markets weighed a rapid rise in Chinese Covid-19 infections with the potential for the country’s economy to fully reopen afterward. brakes on the pandemic.
In a research note, UBS said it expects oil prices to continue rising in 2023.
“We continue to believe that the energy issues of 2022 – such as redirected Russian supply and chronic underinvestment in upstream capacity – will likely persist into 2023, and we expect crude oil prices to rise to 110 dollars a barrel this year,” he said.
The Swiss banking giant predicts demand will be driven by Asia, with three-quarters of global demand growth coming from “emerging Asia”, which includes countries like China, India, Indonesia and Korea.
UBS also pointed out that OECD countries are rebuilding their oil reserves, while the EU ban on Russian imports remains in place, which will also increase demand.
UBS said: “This should lead to strong year-over-year demand growth, although reopening is likely to be bumpy in the short term with occasional setbacks.”
The price of Brent Crude has fallen significantly since the highs of March 2022
ING head of commodities strategy Warren Patterson agrees that “the outlook for the oil market remains bullish” but forecast a more conservative Brent Crude price target of “just over $100/barrel in 2023″.
He said: “The change in Covid policy in China should prove supportive of demand in the medium to long term, although it is true that the increase in Covid infections could weigh on demand in the immediate term. .
For now, analysts seem inclined to believe that oil – and gas – prices will fall in 2023 and 2024.
“Russian oil supply is expected to fall further due to the EU embargo on Russian crude and refined products transported by sea,” he added. As a result, the oil market should tighten from the second quarter.
However, AJ Bell’s chief investment officer, Russ Mold, explained that these views do not hold consensus in the market and, “at the moment, analysts seem inclined to believe that oil (and gas) prices ) will decline in 2023 and 2024”.
This is mainly due to the fact that the markets expect “a fall of one third in the operating profit of the seven Western oil majors between 2022 and 2024”, according to Mould, “the equivalent of a fall of 120 billion dollars (and that’s before any changes to interest or tax bills’.
The expected decline in operating profit is driven by expectations of lower demand due to an impending recession, the potential for peace in Ukraine, high European stocking levels and “the long-term trend towards renewable energy,” Mr Mold said.
Brent crude oil prices soared in the first half of 2022 at the start of the war in Ukraine, reaching $128 a barrel in March.
But the 25% downward spiral in oil prices in the second half of 2022, which saw Brent Crude end 2022 at around $82, bolstered optimism that inflationary pressures have peaked and will begin to normalize this year. .
Last year’s energy price shocks were the main driver of global inflationary pressures and were themselves largely fueled by the impact of the war in Ukraine.
Therefore, central bank interest rate hikes, which aim to minimize inflation by squeezing demand, are to some extent a blunt instrument to tackle the underlying factors driving up prices.
The Rathbones data shows how the gas price shock was felt more intensely in Europe than in the United States.
Higher energy costs: The United States was hardest hit by the oil shocks in the 1970s, but today European countries are suffering the most
A sharp rise in gas prices affects the UK and Europe more than the US
Ed Smith, Co-Chief Investment Officer, explained: “It’s not about intensity of use – around a third of Europe’s power generation is gas dependent, compared to more than half of US generation. It’s just a matter of price. At their peak last year, gas prices in Europe had increased more than 14 times, while gas prices in the United States had increased less than four times.
“Because liquefaction and shipping are expensive processes, the gas market is not fully integrated on a global scale as other commodities often are. Consequently, supply shocks act more at the regional level than at the global level.
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