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- Oil prices will rise above $100 a barrel in 2023, according to a projection in the Eurasia Group’s top risks of the year.
- Oil demand looks poised to grow as China recovers quickly after backing off zero-COVID polices and the US experiences only a shallow recession.
- Brent and WTI crude prices recently traded below $78 a barrel each.
Oil prices will spring back above $100 a barrel in 2023 as tight supply meets growing demand, the political research and consultancy firm Eurasia Group said in its list of top risks this year.
That would represent a 28% increase in the price of international benchmark Brent crude, which traded around $77.90 a barrel on Wednesday. Calculating for West Texas Intermediate crude, the increase would be 37% from $72.80 a barrel.
The oil market is poised to experience shocks this year on the back of a faster-than-expected economic recovery in China after the country’s sudden exit from zero-COVID policies along with a shallow recession in the US that won’t sink demand, wrote Ian Bremmer, president and founder of Eurasia Group, and Cliff Kupchan, the firm’s chairman and head of global macro coverage.
They said those two factors would bolster demand growth for crude oil and expose an acute lack of new supply.
“Contributing to the problem are Russian production declines amid continued sanctions, low levels of OPEC+ spare capacity, reduced capital investment in non-OPEC production, and the absence of an Iran nuclear deal,” said the firm, noting that the lack of such a nuclear agreement is also on its list of risks.
Tensions are likely to rise between OPEC+ and global consumers — led by the US — as the oil cartel wants to protect a price floor of about $90 per barrel for Brent, which is at odds with the lower prices for oil that consumers want.
“Higher prices will prompt the US to intervene directly in markets and punish moves by oil-producing states it sees as (at least partially) politically motivated,” Eurasia Group projected.
Meanwhile, US natural gas prices will go up and “feel the strain” from the European Union’s need to rebuild gas storage from the second quarter of this year in the absence of cheap Russian supplies.
China’s economic recovery and increased global demand for liquefied natural gas will likely drive US natural gas prices closer to $8 per million British thermal units or more.
Last year, natural gas topped $8 as European demand fed US price gains. They have since tumbled amid unseasonably warm weather and traded around $4.056 on Wednesday.
“In short, the respite in energy markets this winter will be temporary – the eye of the hurricane before a renewed energy crunch adds to pressure on consumers, puts fiscal strain on governments, and deepens divides between developed and developing nations and the United States and Gulf countries,” wrote Bremmer and Kupchan.