• OPEC oil production stood at 34.18 million b/d in 2022
• We anticipate that oil prices will rise to $100 and stay over $90 as 2023 goes on
• A few economies kept their primary benchmark interest rates constant, such as China (3.65%) and Japan (-0.1%)

Inflection points will occur in 2023 as the economy exits one of its most challenging phases in recent memory. As we attempt to forecast how the prices of oil and fuel as a whole will be in the upcoming months, this combined with a potential recession in 2023 makes the oil pricing dynamics of interest. Interest rates worldwide increased in 2022. To combat the detrimental impacts of inflation, nearly all nations raised their interest rates.However, a few economies kept their primary benchmark interest rates constant, such as China (3.65%) and Japan (-0.1%). Russia attacked Ukraine, inflation spiked, and airline chaos ruled. Brent crude oil prices may possibly reach a turning point in 2023 as China reopens and supply progressively increases.

We believe that oil will surpass natural gas and thermal coal when comparing the major energy sources, such as thermal coal and oil. We anticipate oil to continue to trade above $90. We anticipate that oil prices will rise to $100 and stay over $90 as 2023 goes on.Such an examination is necessary for two main reasons. First, the world's largest economy in terms of people, China, is reopening its market. This would probably cause the demand for oil to climb to its greatest level in a decade in 2023. This demand is anticipated to be extremely high due to the growing demand from China as well as the recovery of demand from Covid-19 levels to pre-Covid levels.

The measures of the European Union, which intends to impose new import restrictions of Russian oil, will also improve oil prices. This embargo was put into effect after the ceiling on Russian oil prices was established. Even as the Biden administration protests, Europe has also suggested lowering this threshold even further.

As a result, the oil market is experiencing a period of extraordinary demand growth coupled with ongoing supply restrictions. Nigeria is increasing its production, which is good news for the supply side of the equation as Venezuela is slowly making a recovery. Nigeria's oil production is expected to increase once more in 2023 thanks to the announcement by Shell Petroleum Development Company Limited (SPDC) that its 400,000 barrels per day (bpd) Forcados Oil Terminal would solidify its position after months of underproduction and a significant drop in foreign exchange earnings from oil export due to crude theft and vandalism.

The National Iranian Oil Company (NIOC) Chief Executive Officer (CEO) Mohsen Khojastemehr stated that the country is planning to increase its oil production capacity by 200,000 barrels per day (bpd) by March 2023.In Angola, The Angolan government expects an increase in crude oil production of around 32.8 thousand barrels/day in 2023, rising from 1.14 million in 2022 to 1.18 million barrels/day.

PROJECTED FALLING PRICES

The U.S. Energy Information Agency (EIA) forecast earlier this month that the average Brent crude oil price would decrease from 100.94 U.S. dollars per barrel in 2022 to 83.1 dollars in 2023 and 77.57 dollars in 2024.Already, Brent’s monthly average price fell by 34 percent from 122.71 dollars per barrel in June to 80.92 dollars per barrel in December last year.

The market sentiment is believed to be caused by slower oil demand growth due to a weak global economic recovery, and relatively ample non-Organization of the Petroleum Exporting Countries (OPEC) supply growth to replace potential Russian production loss, though OPEC and its allies, known as OPEC+, are trying to reverse the trend through its pricing power.

SLOWER DEMAND GROWTH, LESS SUPPLY LOSS

The ongoing weakening of the oil market is “definitely driven by the demand side this time.

The EIA estimated that facing headwinds for global economic recovery, the global demand for liquid fuels may only grow by 1 percent from 99.43 million barrels per day (b/d) in 2022 to 100.48 million in 2023, and by 1.7 percent to 102.2 million in 2024.

On the supply side, the EIA said that due to a production surge particularly in non-OPEC producers, the global liquid fuels supply would grow by 1.1 million b/d in 2023 and 1.7 million b/d in 2024, which is expected to compensate for an estimated 1.5 million b/d of Russian production decline due to sanctions.

Meanwhile, the latest predictions of Russian production loss by both the EIA and OPEC are significantly lower than the initially EIA-estimated 3 million b/d, analysts noted.The EIA expected Russia’s production of petroleum and other liquid fuels to decrease from 10.9 million b/d to 9.5 million in 2023 and 9.4 million in 2024 due to the sanctions.OPEC projected a much smaller decline of Russian annual oil production from 10.8 million b/d in 2021 to 10.2 million in 2024.

Though Russia’s loss has been limited so far, experts noted that new sanctions may lead to a further decline this year.A price cap on Russian seaborne crude at 60 dollars per barrel agreed by the European Union, the Group of Seven nations and Australia came into effect last month. Russian crude has been trading at a significant discount to Brent by as much as 30 dollars per barrel.

OPEC REGAINS POWER

In response to fast-changing market conditions, OPEC+ countries, led by Saudi Arabia and Russia, in recent years have held frequent meetings to coordinate production adjustment.In April 2020, when the COVID-19 virus spread all over the world, OPEC+ decided to cut production of more than 7 million b/d, ushering in a 26-month Brent price hike from then 18.38 dollars per barrel to 122.71 dollars per barrel in June last year.

Responding to the three-month Brent price falling since June last year, OPEC+ again decided in October-22 to reduce output by 2 million b/d, much to the disappointment of the Joe Biden administration struggling with high inflation when the 2022 U.S. midterm elections were only one month away.

OPEC oil production stood at 34.18 million b/d in 2022, making up about 34 percent of the global total, data from the EIA showed. In the long run, OPEC projected that its market share could be maintained at one-third up to 2030 and be increased to 39 percent by 2045.

UNCERTAINTIES AHEAD

Forecasting oil prices is very challenging since too many uncertainties lie ahead.Answers remain unknown as to whether there will be more harsh sanctions on Russia’s oil exports, whether infrastructure constraints and other bottlenecks will hold back the U.S. oil production surge, and whether Venezuela and Libya can meet their expectations in oil production hike.The year of 2023 is expected to be the beginning of a global commodity market rebound.