2023 oil and gas outlook: Interview with our energy commodities economist

In our latest insight piece, we interview our energy commodities economist Matthew Cunningham about our 2023 oil price and production forecasts. Will the oil market be more stable in 2023? What effect will OPEC+’s quota cut last year have on oil production this year?

The war and transport were the main factors impacting the market this year, will 2023 bring some stability in this regard? What other major trends are you watching?

Yes. Most of the volatility seen in oil prices this year was caused by the announcement of Russia’s invasion of Ukraine—with prices spiking around 30% by early March—and the later announcement of sanctions by Western countries and their allies. With a major escalation of the war involving NATO unlikely, and most significant sanctions already announced, the war is less likely to cause prices to spike or plummet as sharply as in 2022.

The other factors we are watching include OPEC+ output, the potential lifting of sanctions on Iran and Venezuela, further oil reserve releases, and global economic growth—with a focus on U.S. Fed hikes as well as China, following the recent relaxation of the country’s zero-Covid policy.

Oil prices reached 14-year highs earlier this year, do you expect more record highs in 2023?

No. We expect crude prices on the whole to average around 7% lower in 2023 than they did in 2022. A bearish demand outlook will drag on prices, with global economic growth set to slow as the Fed and other major central banks continue with monetary tightening.

That said, our panelists expect prices to remain at some of the highest levels in the past decade, at above USD 90 per barrel. Increasing disruption to Russian exports and OPEC+’s recent cut to output quotas will limit supply, with the market projected to be in a slight deficit next year. Moreover, there are upside risks to prices posed by better-than-expected growth in China or a sharper-than-expected fall in supply.

Do you expect increased production out of OPEC and non-OPEC nations in 2023?

Our panelists see production from OPEC countries largely stagnating in 2023, capped by the recent cut to output quotas. Moreover, Iranian oil output will stay depressed due to a slim path to a nuclear deal. However, Venezuela oil output should rise thanks to the U.S. government’s recent decision to allow Chevron to resume production in the country. Regarding non-OPEC output, Russian production is likely to fall due to tighter sanctions. Production in the United States is set to grow, but the expansion will be limited by recent weak drilling activity by U.S. shale producers.

 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

Date: January 17, 2023