Oil prices poised to rally in 2023 as Russian exports fall: IEA

Global oil demand growth will slow next year but prices could rally as sanctions imposed by the EU and G7 constrict Russian supplies, the International Energy Agency said.

Russia’s oil output will fall by 1.4 million barrels per day (bpd) next year, further tightening balances as a December 5 price cap imposed by the G7, the European Union, and Australia takes effect seeking to curb Moscow’s wartime revenue, the Paris-based said in a report on Wednesday.

According to Opec, oil demand will grow in 2023 by 2.25 million bpd over next year to 101.8 million bpd, with potential upside from China, the world’s top importer.

Oil prices rose on Wednesday after Opec and the IEA both forecast a rebound in demand over the course of next year and as US rate hikes are expected to ease alongside slowing inflation.

Brent crude futures rose 76 cents, or 0.9 per cent, to $81.44 per barrel by 1144GMT, while US West Texas Intermediate (WTI) crude futures were up 80 cents at $76.19.

By the end of the first quarter 2023, Russia’s output is poised to plunge 14 per cent. If that forecast holds true, it could reverse the recent trend in oil futures, which have retreated to $80 a barrel in London after their worst weekly slump in four months.

“While lower oil prices come as a welcome relief to consumers faced by surging inflation, the full impact of embargoes on Russian crude and product supplies remains to be seen,” the IEA said. “As we move through the winter months and toward a tighter oil balance in the second quarter, another price rally cannot be ruled out.”

Russia’s output rose by 90,000 bpd in November to 11.2 million bpd, just 200,000 bpd below levels seen before Moscow sent troops into Ukraine.

Its output has consistently outstripped IEA predictions though lower global prices and steeper discounts on Russian oil meant Moscow’s revenue fell by $700 million to $15.8 billion, the IEA said.

Despite slow growth globally, oil demand will still be at a robust 1.7 per cent as China recovers from Covid-related economic doldrums. This year China is still headed for a contraction in oil demand of 400,000 bpd to 15.4 million bpd before recovering by almost one million bpd in 2023, said the IEA in its report.

“While lower oil prices come as a welcome relief to consumers faced by surging inflation, the full impact of embargoes on Russian crude and product supplies remains to be seen,” the IEA said.

China, India, and the Middle East picked up some of the slack left by flagging oil uptake in Europe and elsewhere in East Asia, the IEA said.

The data prompted the IEA to raise its estimate for oil demand growth this year by 140,000 bpd to 2.3 million bpd and for next year by 100,000 bpd to 1.7 million bpd for a total of 101.6 million bpd.

“While restriction levels in (China) remain high, the stage is now set for a progressive reopening in 2023. We have raised our estimates for 2022 and next year’s growth by 50,000 bpd and 40,000 bpd, respectively.”

“As we move through the winter months and towards a tighter oil balance in Q2 2023, another price rally cannot be ruled out,” the IEA said.

— issacjohn@khaleejtimes.com

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