Oil had experienced a turbulent 2022, a year marked by tight supplies following the war in Ukraine, slowing demand from the world’s top crude importer China and growing fears over global economic growth.
Oil prices are set for another volatile year, as a weakening global economic outlook and a surge of COVID-19 infections in China threaten demand growth and offset the impact of supply shortfalls caused by sanctions on Russia.
The IMF Director Kristalina Georgieva said on Sunday that the economies of the United States, China and Europe are simultaneously slowing down, making 2023 tougher than 2022 for the global economy.
The oil market remains tight despite a deteriorating global outlook, as recessionary fears are growing, and the global economy is likely to fall into a recession in early 2023, caused by the effects of high inflation and rising interest rates. Demand for oil could then grow in the second half of 2023, driven by the easing of COVID-19 restrictions in China and by global central banks adopting a less aggressive stance on interest rates.
Crude surged in March 2022 with international benchmark Brent reaching $139.13 and WTI $130.50 a barrel, the highest since 2008, after Russia’s invasion of Ukraine altered global crude flows. Prices cooled rapidly in the second half of 2022 as central banks hiked interest rates and escalated worries of upcoming recessions.
While a recent increase in year-end holiday travel and Russia’s ban on crude and oil product sales supported crude prices, supply tightness will be offset by declining fuel consumption due to a deteriorating economic environment in 2023.
China’s zero-COVID restrictions, which were abandoned last month crushed demand recovery hopes as the world’s top oil importer and second biggest consumer in 2022 posted its first drop in oil demand for years.
While China is expected to recover in 2023, the recent surge in COVID-19 cases has cooled hopes of an immediate boost in barrel buying. The Chinese government has raised export quotas for refined oil products in the first lot for 2023. The increase to export quotas is likely related to expectations of poor domestic demand, as China continues to battle waves of COVID-19 infections.
The outlook for crude remains highly uncertain and oil prices are likely to remain volatile in 2023. Crude oil has fallen 20% since its early November high and is trading around $74 a barrel on Thursday. In the year ahead, the global economic outlook is likely to play a much more important role determining the price of oil, than production decisions from OPEC+.
We are of the view that the decline from the March 2022 peak is nor complete yet and further weakness to $65.00 for WTI and to $70.00 for Brent is likely in the near-term, where both benchmarks are likely to encounter solid support. Over the longer-term the upside potential for WTI is $93.00 and for Brent is $98.00.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Julian joined Leverage Shares in 2018 as part of the company’s premier expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined LS from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
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