Near-term forecasts for oil prices have been consistently bullish this year, with most forecasters expecting benchmarks to break above $100 next year. In the longer term, however, things are changing. Goldman Sachs, for example, this week said in a note that he expected oil to rise to $125 a barrel if China ended its Covid restrictions. Its baseline forecast for 2023 is for Brent at $110 a barrel, but stronger demand from China if and when the restrictions end could drive the price up even further.
Separately, Morgan Stanley provide that emerging markets are poised to rebound next year, citing China’s growth policy, the spike in the US dollar as the ultimate international currency and the ongoing shift in international trade relations.
A rebounding emerging world would mean more demand for oil, as developing countries are the main engines of growth in the oil market, led by China and, in the lead, India.
In the longer term, however, things seem to be changing, at least according to Fitch Solutions. The company said in a report shared exclusively with Rigzone that he expects oil prices to fall from $102 this year to $95 in 2023 and $85 in 2026.
The reason for this anticipation of lower oil prices over the next three years is the macroeconomic backdrop that has been issuing recession warnings for months in many parts of the world. In this expectation, Fitch is far from alone. Many analysts are expecting a recession, although not all agree on the direction oil prices will take due to these economic trends.
Related: Oil prices fall as geopolitical tensions ease
It was due to recession fears that OPEC itself cut its forecast for oil demand, when at the start of the year it was growing at a healthy pace despite rising prices. Not in the latest monthly oil market report, however. In it, OPEC said that economic factors affecting oil prices were biased to the downside and revised demand growth forecasts by 100,000 bpd.
The strength of the influence of recession expectations on oil prices can be seen almost daily: media reports on oil prices note recession fears as the reason for any decline in prices during a trading session more frequently than any other factor.
These fears tend to be countered by optimism about China, also on an almost daily basis. Meanwhile, forecasts of the impending recession continue to pour in, especially for Europe.
“Consumer confidence has plunged so much that the recession is unlikely to be superficial,” Berenberg chief economist Holger Schmieding said. Told CNBC as part of the European Union Economic Outlook.
Growth in the eurozone economy is expected to contract from 0.8% in the second quarter to 0.2% in the third quarter. It’s still a positive number, but economists seem to have doubts about when the EU will have to take up the challenge of filling its gas storage facilities, but this time without the flow of Russian oil it has. received in the first half of this year.
A recession is a surefire way to lower oil prices, as Reuters’ John Kemp Noted in a column earlier this month. In it, he said that despite many economists in official positions dancing around the word recession without actually using it, the downturn had already begun in the United States. This is also evident in the European Union.
The question from now on is therefore to what extent these economies will slow further. The more they slowed down, the greater the destruction of oil demand would be and, therefore, the greater the effect on international prices would be.
By Charles Kennedy for Oilprice.com
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