Oil prices are likely to surge in 2023, as a result of multiple factors like a rebound in economic activity in China and a shortage in Russian crude owing to sanctions. At least one analyst believes that crude prices could touch the $140 levels in the next year. According to hedge fund manager Pierre Andurand, crude could hit this level due to a potential reopening of China's economy and a resultant growth in consumption.
Crude Demand to Rise by 4 Million Barrels
Andurand says that there is a possibility that crude oil demand would grow by more than 4 million barrels per day in 2023. If this happens, the demand will far exceed the supply side forecast by oil market experts. "I think oil will go upwards of $140 a barrel once Asia fully reopens, assuming there will be no more lockdowns ... (the) market is underestimating the scale of the demand boost that it will bring," Andurand said, according to Bloomberg News.
Oilprice.com also said in a report that the chances of crude prices remaining elevated next year are sound. "... Some analysts believe that many of the headwinds that have cut short the oil price rally this year, including China's zero-Covid policy and the coordinated SPR releases by several governments, will no longer be there in 2023. Coupled with sanctions on Russia's oil and gas, this should elevate oil prices," the portal said.
The Other Argument
However, there is also the other argument that says a host of factors could keep the prices suppressed. Immediately after the start of the Russian invasion of Ukraine last year, oil prices had spiked to $130 per barrel.
However, oil prices declined steadily after July, coming down gradually to the pre-war level of $80 per barrel. "In large part, oil prices have declined in recent months due to recessionary fears and increasing interest rates in many developed economies. A worsening of the situation in Ukraine could also provide bearish signals to the market as a result of the global economic slowdown," said Jorge Leon, strategist at Rystad Energy, according to Yahoo News.
China's Covid-19 situation still remains edgy as the end of the zero-Covid policy has resulted in a surge in infections and deaths. "There are fears that oil prices could fall further due to surging Covid cases in China. Chinese manufacturing activity dropped for a third consecutive month in December, increasing the probability that oil demand could weaken in the early months of the new year," according to Oilprice.com.