Short-term oil price forecasts are consistently bullish this year, with most forecasters expecting benchmarks to top $100 sometime next year. Over the long term, however, things change.
Goldman Sachs, for example, said this week in a note that it expected oil could rise to $125 a barrel if China lifted its Covid restrictions. Its base case forecast for 2023 is for Brent at $110 a barrel, but stronger demand from China if and when restrictions end could push the price even higher.
Separately, Morgan Stanley forecasts that emerging markets will rebound next year, citing China’s pro-growth policy, the peak of the US dollar as the last international currency, and the ongoing shift in trade relations. international.
A world that is emerging again would mean more demand for oil as developing countries are the biggest engines of growth for the oil market, led by China and, at the top, India.
Over the long term, however, things seem to change, at least according to Fitch Solutions. The company said in a report shared exclusively with Rigzone that it expected oil prices to fall from $102 this year to $95 in 2023 and to $85 in 2026.
The reason for this prospect of a decline in oil prices over the next three years is the macroeconomic context that has been flashing recession warnings for months in many parts of the world. In that prospect, Fitch is far from alone. Many of the analysts expect a recession, although not all of them agree on the direction oil prices are going to take as a result of the economic trends.
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OPEC itself cut its forecast for oil demand due to recession concerns, and earlier this year, it was growing at a healthy pace despite the price rally. However, it is not in the latest Monthly Oil Market Report. In it, OPEC said that the economic factors affecting oil prices were skewed to the downside and that 100,000 bpd was expected to increase in demand.
The impact of recession expectations on oil prices can be seen firsthand on an almost daily basis: media reports on oil prices note that fear of recession is the reason for any decline in prices during any session trading more often than any other factors.
These fears are usually countered with optimism about China, almost daily as well. Meanwhile, recession forecasts keep coming, especially for Europe.
“Consumer confidence has fallen so badly that the recession is unlikely to be shallow,” Berenberg’s chief economist, Holger Schmieding, told CNBC in the context of the economic forecast for the European Union.
The growth of the euro area economy is seen to be increasing from 0.8 percent in the second quarter to 0.2 percent in the third quarter. It’s still a positive number, but economists seem skeptical that next year the EU will face the challenge of refilling its gas storage facilities—but this time without the flow of Russian oil it received in the first half of this year.
A recession is a sure way to lower oil prices, as Reuters’ John Kemp noted in a column earlier this month. In it, he said, despite many economists in official positions dancing around the word recession without actually using it, the slowdown had already begun in the United States. It is also clear in the European Union.
The question from now on, then, is how much more these economies will slow down. The more they slow down, the more the demand for oil will be destroyed and, accordingly, the greater the effect on international prices.
By Charles Kennedy for Oilprice.com
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