Oil Prices to Hit $90 in 2023, as Russian Production Jumps to Prewar Levels

• JPMorgan predicts that oil prices will hover at $90 per barrel by 2023, as Russia increases its production to prewar levels.
• Because of Russia’s expected increase in oil supply, the bank reduced its 2023 oil outlook by $8.
• Oil prices will also be supported by the refilling of special petroleum reserve by Biden administration.

The oil price will rise slightly in 2023 but not as much as it did in 2022. JPMorganOriginal expectations, as per a Monday note.

The bank has lowered its 2023 reserves Brent crude oilExpected to increase to $90 per barrel from $98, on the basis that Russia will resume normal oil production at pre-war levels. JPMorgan expects only 8% growth next year, Brent crude oil trading at $83.55 per bar.

JPMorgan believes that Russia will find a buyer in India if its oil production levels stabilize as JPMorgan anticipates. JPMorgan stated that the US had basically indicated it was happy for India to continue purchasing Russian oil, provided it does not use Western finance, insurance, or tankers. 

The Biden administration’s need of a strong leadership The US strategic petroleum reserve must be replenishedShould also support oil prices in the future. The Biden administration attempted to lower inflationary pressures caused by high oil prices with the aim of reducing the reserves by about 200 million barrels.

JPMorgan believes that the US administration should replenish its oil SPR inventories in the first half next year, as economic concerns grow. Because concerns about economic demand tend to push oil prices down. 

JPMorgan stated that even though there is a possibility of a slowdown in global economic growth, there should still be strong oil demand, driven by normalization of COVID-19-related services. This is especially true if China ends its COVID lockdown.

“Global traffic is back to slightly higher levels than 2019 despite Asian road activity declining due to China’s recent lockdown wave. European road traffic has steadily returned to levels above 2019, while North American road traffic is flattish, at around 103% of 2019 levels. Ex-China, global flight numbers have remained steady at a little over 85% throughout most of the year,” JPMorgan stated.

JPMorgan stated that the OPEC+ alliance will likely “do most of the heavy lifting” in order to maintain oil markets balanced next to year. As US shale continues to exert less influence on oil prices than it did a few years back, this could result in OPEC making slight reductions in oil production next year to prop up oil prices.

The note states that JPMorgan’s oil forecast could be at risk from a number of macro and geopolitical factors.

Their oil projections are most at risk if there is a deal between Russia and Ukraine. JPMorgan stated that any news of a ceasefire, or peace agreement, would cause oil prices to reset back to their pre-war levels of $75 per barrel. 

JPMorgan’s 2023 oil outlook is also at risk due to the timing of a possible China reopening or a global recession. Both of these factors would have a significant impact on oil prices, depending on their timing and severity. 

JPMorgan does not expect oil prices to drop by more than $15/barrel in the face of global recession. This is due to the capital discipline displayed by many oil producers in recent times.