Source: Bloomberg
Author: Grant Smith
Article: Original article
Publication date: Wednesday, December 14, 2022
The International Energy Agency (IEA) announced that oil prices might rise next year, as sanctions limit Russian supplies and demand exceeds expectations.
Russian oil production, which has remained steady regardless of the previous IEA forecasts, might fall by 14% by the end of the first fiscal quarter of 2023. If these predictions find confirmation, the falling trend in oil prices might be changed.
Although lower oil prices are a long-awaited relief for consumers, facing rising inflation, the full impact of the embargo on Russian oil and petroleum products has yet to be seen, stated the IEA. It was also added that the oil market will tighten in winter, therefore, another price rally can’t be excluded in the second quarter of 2023.
The IEA raised forecasts for global oil demand in 2023 by 300,000 barrels per day amid a strong growth of demand in India and steady demand in China. In the upcoming year, consumption will increase by 1.7 million barrels per day and will be 101.6 million barrels per day on average.
Nevertheless, it’s still a quite soft outlook contrary to the IEA’s recent reports, which a few weeks ago emphasized the risk of supply cuts and called on the OPEC+ coalition to reverse its latest production cut.
The IEA acknowledged that Russian exports continue to grow despite repeated predictions that sanctions would cut supplies. According to the report, in November, Russian oil supplies rose to a seven-month high of 8.1 million barrels per day, even though revenues fell due to lower prices.
The IEA also said that sustainability of Russia's production as well contributed to smaller cuts from other OPEC+ countries. Last month, the organization cut supplies by only a quarter of the 2 million barrels-a-day, as many countries were already producing oil below the established quotas.
However, the IEA’s data predicted that global markets are to be tightened in 2023.
The agency predicts that Russian production will finally begin to decline this month, as European Union (EU) sanctions force the country to cut production by about 400,000 barrels per day.
According to the report, Russian oil production will drop from its current level of 11.2 million barrels per day to 9.6 million barrels per day by the end of the first fiscal quarter of 2023. Earlier, Russia stated that it would reduce its production and wouldn’t sell oil to buyers at restricted prices, as it was required by the G-7.
At the same time, "buoyant" consumption of petroleum products in emerging economies demonstrates that global oil demand will grow at a higher rate in 2023 than it was forecasted. India has had the most significant demand growth over the recent months, but next year China might exceed it again as the Middle Kingdom emerges from strict "Covid Zero" restrictions.
Forecast: the growth of Brent crude oil
This content is for informational purposes only and is not intended to be investing advice.
