Will oil creep back towards $100 in 2023?

Oil prices, which have slumped by 40 per cent, after adjusted for inflation, in one year since March 8, 2022 high are likely to creep back toward $100 in the second half of 2023 despite fears of rising interest rates, major oil traders say.

Prices could hit the $90-$100 per barrel range in the second half of this year as global demand is set to reach record levels amid constrained supply, Russell Hardy, CEO at the world’s largest independent oil trader, Vitol Group, was quoted by Bloomberg Television.

“The prospect of higher prices in the second half of the year, in the sort of $90-$100 range, is a real possibility,” Hardy said.

Scott Sheffield, CEO of oil producer Pioneer Natural Resources, believes oil will approach the triple digits again this summer. "We remain highly constructive on oil prices. I'm still very optimistic that we'll move back into that $90 to $100 range sometime earlier this summer."

Average oil prices should remain below 2022’s $100/bbl average for international Brent benchmark, but exceed the medium-term price of $50-70/bbl, according to Moody’s Investors Service.

“Oil price trajectory this year remains uncertain and depends on economic outcomes in major economies,” says Madhavi Bokil, senior vice-president, CSR, Moody’s.

“We expect two opposing market forces will keep oil prices highly volatile this year: a slowdown in demand and restricted supply.”

In 2022, oil soared above $100 for the first time since 2014 as demand recovered from Covid-19 lockdowns in much of the world and Russia's invasion of Ukraine added to supply concerns. But Brent crude ended the year close to $86 on fears of global recession.

Traders said a return of Brent crude to above $100 at some time in 2023 is not unexpected although consensus in the industry currently is for lower prices in 2022. However, a Reuters survey of 30 economists and analysts forecast Brent would average $89.37 a barrel in 2023, down from $99 in 2022. Goldman Sachs lowered its 2023 Brent forecast to $92.

According to Hardy, global oil demand will rise by 2.2 million barrels per day (bpd) in 2023 compared to 2022 and will reach a record level, driven by a jump in diesel, naphtha, and liquid petroleum gas (LPG) demand.

“You don’t have much room on the supply side is the reality, so the potential for a rally is certainly there,” Hardy said.

Analysts believe that oil may resume its rally in 2023 as Chinese demand recovers after Covid curbs were scrapped and lack of investment limits growth in supply. While the Russian invasion of Ukraine and its impact on supply and the energy markets continues to hang over the oil market, the economies of the United States and China are dictating current price trends and will determine where prices will go when they break out of the current range. If China rebounds strongly after the reopening, prices could break above the recent tight range, considering that global inventories are below the five-year average and signs are emerging of a tighter physical crude market.

In a soft landing for the US economy, prices could soon surpass $90 per barrel, some of the world’s biggest physical traders of oil say.

• Business