Global crude oil prices are expected to average $92 per barrel in 2023 and $80 per barrel in 2024, the World Bank said in a report late.
This is slightly lower than the a projected $100 per barrel in 2022, noted Peter Nagle, Senior Economist, and Kaltrina Temaj, research analyst with the World Bank’s Prospects Group, in a blog.
While crude prices have fallen by about one-third from their highs reached in June, the market remains extremely volatile due to a combination of factors, the blog says. “Slowing global growth and concerns about a global recession have thus far outweighed worries about insufficient oil supply. However, prices will remain well above their recent five-year average of $60 per barrel,” they wrote.
The major factors that are likely to affect prices in the coming year include both supply and demand factors. On the supply side, the the major issues at play include European Union sanctions on Russia and the G7 oil price cap, production by the Organisation of Petroleum Exporting Countries and its allies, collectively known as Opec+, the outlook for US shale oil, and the use and refilling of strategic oil inventories. On the demand side, a potential global recession as a result of continued hawkish stance by the leading central banks and the easing of Covid-19 restrictions in China that has led to an outbreak of infections remain critical to the overall health of the market.
The attack on Ukraine and subsequent sanctions by the global community has had little effect on Russia’s oil production machinery. According to World Bank estimates, Russia’s total oil production has seen a modest decline of about 0.3 million bpd since its invasion of Ukraine. This is much less than the 2.5-3.0 million bpd decline anticipated by the International Energy Agency’s in its Oil Market Report in April this year. This is primarily because Russia has been able to find customers beyond the standard market dynamics, notably India and China. In addition, the price of of $60 set on Russian oil remains comfortably above the average price of Russian Urals crude, currently hovering around $57 a barrel, the writers note.
With members of the Opec+ maintaining their decision to cut output, supply from the group is likely to remain on the same levels as this year. The group members agreed to cut their production target by 2 million barrels per day starting in November 2022 and lasting through end-2023. However, the World Bank notes that the actual production cuts are smaller, “largely because many members were already producing well below their target due to operational issues and capacity constraints”. The estimated outout is around 1.7 million bpd, according to estimates.
US shale production, which had acted as a swing factor through most of the previous decade, is losing its impact. While half of global output growth is expected to come from the US, actual production increase is only likely to be around 1 million bpd, the World Bank noted. “Production increases in 2022 have been heavily supported by a drawdown of drilled but uncompleted wells, which has reduced the number of uncompleted wells available to support production going forward,” the blog says. In addition, most producers remain focussed on returning cash to shareholders rather than invest in new wells.
In a new development, the Biden administration said on Friday it is buying 3 million barrels of oil to begin to replenish US strategic reserves that officials drained earlier this year. The move gains significance with global prices currently heading south, the reserves will help serve to calm prices at the pump in the event of costs spiking next year.
President Joe Biden withdrew 180 million barrels from the Strategic Petroleum Reserve starting in March, bringing the stockpile to its lowest level since the 1980s. The purchase, to begin in January, will start to replenish the reserve and is likely to be followed by additional purchases, officials said.