Swiss analysts predicted oil at $110 a barrel: a lot depends on Russia

Will the forecast come true, experts say

In the second half of 2023, world prices for Brent oil will rise to $110 per barrel, and in the coming months the threshold of one hundred dollars will be exceeded. Such a forecast, quite favorable for Russia, was made by the largest Swiss financial holding UBS. Meanwhile, at the moment, oil continues to become cheaper, and so far this trend looks quite stable.

Push quotes up will recover demand for energy in emerging markets in general and in China in particular, UBS analysts believe. According to their calculations, China’s demand for oil will exceed the level of the pre-pandemic 2019. At the same time, the key energy problems of 2022 related to sanctions against Russian raw materials supplies and chronic underfunding of oil production will make themselves felt to the maximum extent.

On Wednesday, January 4, oil quotes accelerated the fall to almost 3%, Brent futures fell below $80 per barrel. And following the results of the previous trading day, the first in the coming year, Brent crude oil fell by 4.43% at once – to $82.1. On Thursday, January 5, the price was $79.65 per barrel.

The situation is associated, firstly, with an increase in the incidence of coronavirus in China (worsening the short-term prospects for oil demand in this country), and secondly, with fears about a possible recession in the global economy. In addition, in China, the index of business activity (PMI) in the non-manufacturing sector in December fell to 41.6 points from 46.7 in November.

“Now all forecasts regarding oil prices, including the UBS estimate, are speculative, conditional,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – In this case, the Swiss holding joined the group of large international banks such as Goldman Sachs and JP Morgan, which announced the same figure – $110 per barrel in the second half of the year, or in the 4th quarter. However, there is another expert point of view, according to which oil will cost about $90 on average. It’s hard to say who is closer to the truth here, you need to wait at least two months (or better, a quarter) until the risks associated with sanctions materialize.”

The fact is, Maslennikov notes, that on January 19-20, the last contracts concluded between Russia and foreign buyers of its energy resources until December 5, the date of entry into force of EU sanctions (an embargo on sea supplies and a price ceiling of $60 per barrel), expire. And while they are not executed, it is difficult to judge the further price trajectory. Approximately after February 1, there will be some clarity about what volumes of oil are underdelivered to the world market. After all, Russia and its counterparties will have to adapt to the new rules of the game, for example (as an option), the new contracts will not mention the price ceiling condition.

“As Deputy Prime Minister Alexander Novak said, our country can cut production by about 500-700 barrels per day,” Maslennikov recalls. – This is about 5-7% of world production. Whether this will actually happen, we do not know. If yes, then the falling volume can be compensated by other members of OPEC. For example, Iraq or Iran. According to analysts of the International Energy Agency, such a step by Moscow will not seriously affect the global market situation. But if Russia crosses the 1 million bpd milestone by diverting export oil flows to domestic consumption, this will lead to a shortage in the world market and skyrocketing prices.”

On the other hand, argues Maslennikov, the UBS forecast does not take into account the factor of a probable global recession. Which, as recently stated by the head of the IMF Kristalina Georgieva, in 2023 will cover a third of the world economy. And this means that consumption and, accordingly, the demand for energy carriers will decrease. In this case, there will be neither a deficit nor a serious (maximum – up to $ 90 per barrel) increase in oil prices.