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What Can we Expect From The Oil Market This Year?

The war in Ukraine has dramatically affected the oil market since February 2022. Indeed, On February 24, 2022, Russia launched a military invasion on Ukraine. This decision has dramatically inflated oil prices to over $110 per barrel. Two weeks prior to the war in Ukraine, oil prices were close to $100 per dollar. In 2020, oil prices were as low as $10 per barrel. But since the beginning of the War in Ukraine, oil prices remained within the $100 range for a couple of months before they started to decline again during the second half of 2022.

Source: Bloomberg

The invasion of Ukraine affected energy markets globally, particularly Europe, which remains the main market for Russian oil and gas due to the lack of energy sources in European countries. Hence, by extension, Europe is also the main source of revenue for Russia. In December 2022, the G7 implemented a cap on the price of Russian oil at $60 a barrel in order to prevent Russia from profiting from the war. The $60 cap on Russian oil comes on top of an EU embargo on imports of Russian crude oil by sea similar pledged by the United States, Canada, and the United Kingdom.

Crude oil prices have fallen by about one-third from their June highs but remain extremely volatile. Indeed, global growth and concerns about a global recession have thus far outweighed worries about insufficient oil supply. Oil prices are forecasted to average $92 per barrel in 2023 and $80 per barrel in 2024. Down from a projected $100 per barrel in 2022. One certain thing is that prices will remain above their recent five-year average of $60 per barrel. The price of oil is expected to fall over the next two years, and here is why.

Source: World Bank

Russian oil production is expected to fall this year as more sanctions will be added to the existing ones. Thus, Russia’s total oil production has seen a modest decline of about 0.3 million per barrel per day since its invasion of Ukraine, much less than 2.5-3.0 million per barrel per day decline anticipated in the International Energy Agency’s April 2022 Oil. Global growth for 2020, which has been revised downward repeatedly since January, is expected to further slow in 2023 due to synchronous policy tightening, worsening financial conditions, and declining confidence. The prospect of a global recession could be too much weaker oil consumption.


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