The Oil Price Rollercoaster Ride: Global Economic Outlook for 2023

Oil prices have been on a rollercoaster ride in recent years. In 2021, crude oil prices were the second highest since 2015, and in early 2021, West Texas Intermediate was trading around $73.57 per barrel. Fast forward one year to March 4, 2022, following the Russian invasion of Ukraine, oil prices sky rocketed to over $110 per barrel. Despite the volatile nature of oil prices, energy analysts and commodity experts are forecasting further increases in 2023, driven by global supply constraints, the OPEC+ production cuts, and the western embargo on Russian oil.

This paper will analyze the factors influencing oil prices in 2023, focusing the state of the energy industry, the global economy, geopolitical tensions, and China’s demand for oil. It will discuss the various predictions of oil prices in 2023 and the potential implications of these price changes.

State of Energy Industry

The state of the energy industry is likely to have an impact on oil prices in 2023. OPEC production cuts, the western embargo on Russian oil, and disruptions to the global oil and natural-gas supply chains could all contribute to higher oil prices. Furthermore, commodity supercycles, which are multiyear periods during which commodity prices often move together, have been identified as a major factor driving oil prices.

The Global Economy

China’s economic policies will have the effect of limiting the further integration of the Chinese economy into the global economy, likely resulting in a decrease in foreign direct investment (FDI) into the country. This could have a significant impact on the global economy, as China is a major trading partner for many countries. In addition, a more assertive foreign policy from China could lead to increased tensions with other countries in the region, such as Japan and South Korea, which could further reduce trade flows and impact economic growth.

Furthermore, China’s close ties to Russia and its support for the Kremlin’s foreign policy could lead to increased sanctions from Western countries, which could have a negative impact on both the Chinese and Russian economies. Finally, China’s increasing reliance on self-reliance and its emphasis on developing its domestic market could lead to a decrease in global trade, which could lead to a decrease in global economic growth.

Geopolitical Tensions

Geopolitical tensions are another factor that could influence oil prices in 2023. For example, the situation in Russia and Ukraine is likely to have an effect on oil prices. The Russian government has announced plans to cut its crude output due to the price cap imposed by the G7 countries, and the OPEC+ countries have maintained their production cuts. Furthermore, the Russian-Ukraine conflict could potentially expand, leading to further disruptions in the global oil and natural-gas supply chains.

China’s Demand for Oil

In addition to the factors already discussed, China’s demand for oil will also affect prices in 2023. China is the world’s largest oil importer and consumer, and its imports of crude oil and petroleum products have been steadily increasing over the past few years. In 2020, China’s crude oil imports rose by 7.2% to a record high of 9.8 million barrels per day (b/d). This is expected to increase further in 2023 as the Chinese economy continues to recover from the impact of the COVID-19 pandemic. The country plans to official re-open it’s borders on February 8, 2023.

Furthermore, China is expected to increase its imports of U.S. crude oil in 2023, which could lead to an increase in global oil prices. In 2020, China imported an average of 2 million b/d of U.S. crude oil, a 50% increase from 2019. This is expected to increase further in 2023, as the Chinese government has recently announced plans to increase its imports of U.S. crude oil.

The Bottom Line

Overall, the factors discussed in this paper will likely affect oil prices in 2023. The global economic outlook, the state of the energy industry, geopolitical tensions, and China’s demand for oil will all have an impact on the price of oil in 2023. It remains to be seen how these factors will interact and what their collective impact on oil prices will be.

Various predictions of oil prices in 2023 have been made by analysts, economists, and energy industry experts. The survey of 30 economists and analysts by the Federal Reserve Bank of Dallas forecasted that Brent crude would average $89.37 a barrel in 2023, about 4.6% lower than the $93.65 consensus.

Source: PetePrices.com

 Energy Commodities: Prices  

WTI CRUDE   •$81.36     +0.35      + 0.43%

BRENT CRUDE   •$87.80   +0.33   +0.38%

NATURAL GAS •$2.92    -0.02       -0.68%

PROPANE  •$0.76   -0.08    -9.52%

HEATING OIL  •$3.41   +0.01   +0.29%