Oil Prices In 2023: Boom Or Bust?

Oil had a wild ride in 2022. It began the year at $82.72 per barrel, raced to $114 towards the middle and ended at $76.95.

What's in the cards for 2023? Athens-based oil forecaster Kosmas Megalooiconomou sees a similar pattern ahead.

Applying a Seasonality Pricing Model, he sees oil prices as having a positive start-end direction. They will be up in the first four months. Then, they will decline until September and rally in the last quarter of the year to end at $98.2.

That's a 27.6% start-end increase from the December 2022 average of $76.95.

Nonetheless, the average price for 2023 is expected to be at $81.5 versus $94.2 in 2022 — a 13.5% decline.

Fanis Matsopoulos, oil analyst and counselor of the Greek Chamber of Commerce and Industry, is skeptical about predictions for crude oil prices for the new year due to the extreme volatility of the oil market.

Matsopoulos sees the ongoing Russian-Ukraine war and the lack of oil-related investments causing supply disruptions as critical factors behind the oil market's volatility — magnified by rising interest rates.

"The global U-turn in monetary policy, which aims to fight elevated inflation, will inevitably cause stagnation — if not recession — to the global economy, which will result in lower oil demand," he told International Business Times.

Kunal Sawhney, CEO of Kalkine Group, keeps an eye on the dollar, which he expects to depreciate in the new year, a positive development for oil prices. "Since oil is priced in dollars, a depreciation in the currency will force oil producers to hike their prices to keep their revenues in line with their currencies," he told IBT.

Jeffrey Whittle, Womble Bond Dickinson partner and head of Womble Bond Dickinson's Global Energy and Natural Resources Industry Sector, focuses on China.

"Assuming China continues to 'come on line' in terms of increasing its manufacturing production, global travel (i.e., increasing demand for jet fuel) and global economic engagement, however, this will tend to put an upper pressure on the prices toward the higher end of that range," he told IBT.

In addition, he pays attention to the prospects of the U.S. government to increase its reserves by purchasing oil during this period, causing upward price pressures during this time.

Mina Tadrus, CEO of Tadrus Capital, is skeptical about the direction of the oil market in 2023, too, with many factors coming to play.

On one side, he sees higher demand for oil as the global economy recovers from the pandemic pushing oil prices higher. "Many countries are starting to ease lockdown restrictions and ramp up their economic activity, which could lead to an increase in demand for oil to fuel transportation and industrial production," he told IBT. "The International Energy Agency (IEA) expects global oil demand to increase by 5.4 million barrels per day in 2023, which could boost prices."

On the other side, Tadrus identifies several factors that could be putting downward pressure on oil prices, like the continued growth of renewable energy sources, such as solar and wind power. "These sources are becoming increasingly competitive with fossil fuels, and their growing adoption could reduce the demand for oil in the long term," he said. "The IEA expects renewable energy to account for almost 30% of global power generation by 2023, up from 25% in 2021."

Then there's the uncertainty surrounding the extensions of oil production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, to support oil prices. They will expire in 2023, and it remains to be seen whether they will be extended. "If production increases, it could lead to a supply glut and put downward pressure on prices," Tadrus said.

And geopolitical risks are another factor to consider. "Oil-producing countries in the Middle East, such as Iraq and Iran, are prone to political instability and conflict, which could disrupt production and impact prices," he said. "In addition, the potential for sanctions or other measures against major oil-producing countries could also impact the market."

"One way or another, most economic factors have been replaced by geopolitics, making it difficult to come up with a low error prediction," Matsopoulos added.