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Outlook 2023: Oil price forecasts

Source: Bloomberg

Oil prices under pressure

Oil prices have continued to fall into the tailend of 2022 after a strong start to the year. An initial spike in prices, following the invasion of Ukraine by Russia, has more than eroded with: Russian oil still making its way into the market, global monetary tightening across most of the global economy threatening growth, as well as zero-tolerance covid policy in China also impacting economic activity and in turn demand side assumptions.

While the Organisation of Petroleum Exporting Countries (OPEC) and its Russian led allies (OPEC+) have tried to balance markets through changes in supply, the strategic release of oil reserves from the US and the International Energy Agency (IEA), as well as price capping on Russian crude has helped temper prices.

Oil demand in 2023

While the US economy is expected to slow, a contraction in European and UK economies are also likley to stifle oil demand. OPEC forecasts suggest that the largest increases to demand are likely to come from China and India. These economies are expected to grow somewhere between 5% and 6% respectively in 2023. The easing of lockdown restrictions in China, if furthered through a softening of zero-tolerance policy could provide more support to demand (upside risk).

An increase in petrol (gasoline) and diesel through industrial demand suggests a modest increase in world demand forecast by OPEC of 2.3% (2.25million barrels per day) in 2023.

Oil supply in 2023

The US is expected to lead supply growth from the Americas, while Russian production (impacted by growing sanctions and price caps) is expected to decline. non-Opec supplies are expected to increase by around 1.5 million barrels per day (mb/d). OPEC production increases are currently expected to be marginal in 2023 at around 0.05mb/d.


Total supply increases of oil in 2023 are expected to fall short of demand side growth, albeit marginally. This suggests a moderate uplift in prices from current levels (as of the end of 2022). The major upside ‘risks’ to oil prices find form in escalating geopolitical tensions (ongoing and still threatening), and the possibility of a faster than expected economic recovery in China (should covid policy see increased and more permanent relaxation).

Markets have been pricing in a slowing rate of growth in the global economy which oil prices do partially reflect already. Downside risks do also remain should slowing growth in the US move to a recession, and what appears a likely recession in parts of Europe become prolonged. However OPEC+ have been quick in the past to counter the threat of fading demand through supply curbs, which would be a likely counter again moving forward should a hard economic landing be realised.

A major input which could catalyse a sharp fall in crude pricing, would be if there was a deescalation of the ongoing Russia / Ukraine war, suggesting that a flurry of supply might eventually be allowed back into the broader market place.

Forecasts for brent crude oil

The US Energy Information Administration currently (as at the 6th of December 2023) forecasts an average price of $92/barrel in 2023.

A Reuters poll of 38 economists / analysts (as of the 1st of Decemebr 2022) provide a median estimate of $100.50/barrel.

JP Morgan Chase & Co. forecast brent crude oil to average around the $90/barrel level in 2023 (as of the 30th of November 2022).

Goldman Sachs economists have suggested (8 November 2022) that if China ends its lockdown policy, oil could race to $125/barrel.

Brent crude – Technical view

Source: IG

The long term trend for brent crude remains down for the time being, although we have started to see a rebound from oversold territory.

For more meaningful gains and a suggestion that the longer term downtrend is now broken, we would like to see the price trading above the high at 8770 and trend line resistance. In this scenario 98.40 become the next upside target consideration.
However should the rebound from oversold territory not have enough momentum to take out these levels, a bearish candle stick reversal would start to consider the continuation of the prevailing downtrend, with 75.40 and 71.00 respective downside support targets.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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