The price of crude oil is very sensitive, it changes quickly based on supply and demand, as well as global events. The last few years show clear evidence of this, and while the economy has begun to recover from the pandemic, rising global uncertainty will be reflected in the short to medium term for the price of oil. It's anyone's guess where it will go.
Depending on who you ask, the price of oil could hit $110 per barrel, or it could average around $93 in 2023. Let's take a look at who is saying what, and how you can invest to capitalize on oil price movements. However you choose to add oil to your portfolio, look for a regulated and trusted broker such as Easymarkets to help you make the most of bull and bear markets with the range of options on offer.
Arguments for less than $100 a barrel
In its December 6 estimates, the US Energy Information Administration predicted that the world's oil reserves will fall by 0.2 million barrels per day (b/d) in the first half of 2023 before rising by nearly 0.7 million b/d. If this happens, global oil stockpiles would be higher than forecast in the November study, dropping Brent Crude oil prices to $92 per barrel (b) in 2023.
A Reuters survey of 38 economists and experts estimated Brent Crude, the industry benchmark, at $100.50 per barrel this year and $93.65 in 2023, down from $101.10 and $95.74 in October. This was based on the EU ban on Russian oil causing uncertainty in 2022, but economic uncertainties are likely to lower prices in 2023.
Above $100?
Despite acknowledging the volatility, Goldman Sachs predicted $110 per barrel for oil in 2023. The latest downgrades in oil prices, according to Jeff Currie, global head of commodities at Goldman Sachs, were brought on by the strong US dollar and the impacts of China’s lockdowns.
Director of research for Energy Aspects, Amrita Sen, speaking to The Wall Street Journal further commented on the situation with China, saying the pent-up demand there will cause prices to skyrocket. This might be the deciding factor between a $95 to $105 oil price projection vs $120 to $130.
European impact
The recent rise in energy costs represents the potential for a large supply shock, and as a result, it may potentially have an effect on the potential output of the economy in the euro area.
According to the ECB, oil prices rising one per cent would lower euro area potential output by 0.02 per cent in the medium term. Assuming a permanent 40 per cent oil price shock, as predicted by Eurosystem staff macroeconomic projections, the euro area's potential output would fall by 0.8 per cent after four years.
In contrast, Malta's energy prices have stayed stable since the crisis began, shielding local businesses and households from the bloc's inflationary pressures. In October, the Government declared it will spend 10 per cent of its recurring expenditures in 2023 to maintain power and fuel prices.
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