Brent crude oil price continued falling as the market reflected on this week’s cap of Russian oil. It plunged to $83.17, which is close to the lowest level since January this year. Oil has plummeted by about 40% from its highest level this year. West Texas Intermediate (WTI) and Russian urals have also retreated.
Brent crude oil price has had an eventful performance this year. It initially surged to over $130 in February when Russia invaded Ukraine and western governments unveiled their sanctions. The US was the first country to ban Russian oil.
Oil prices then retreated throughout the year as the impact of sanctions waned and as the slowdown of the Chinese market continued. China’s GDP is expected to have the slowest growth in decades this year because of the lockdowns.
Further, actions by the United States also pushed oil prices lower. Joe Biden decided to release millions of oil barrels from the Strategic Petroleum Reserves (SPR) in a bid to lower gasoline prices.
The most recent oil price news was the decision by the G7 to place a limit on Russian ural price at $60. In its response, Russia warned that it will stop shipping oil to countries that participate in the cap. The European Union and the UK also joined to ban Russian oil.
Another oil news was the decision by OPEC+ to stick with its oil production target despite headwinds. There are signs that China is reopening its economy as well.
The four-hour chart shows that Brent has been in a strong bearish trend in the past few months. Along the way, it managed to move below all moving averages and the important resistance level at $88.72. The Relative Strength Index (RSI) has moved below the neutral point at 50 while the price is below the Supertrend indicator.
Therefore, Brent crude oil price will likely end 2022 at or below the support at $80. A move above the resistance at $88.7 will invalidate the bearish view.
Analysts have a mixed prediction of oil prices in 2023. Goldman Sachs analysts expect that oil prices will jump to $110 in 2023, helped by soaring demand from China.
The same view was shared by analysts at Bank of America, who expect that oil will soar to $110 in 2023. They noted the Chinese risk and supply disruptions in countries like Libya, Nigeria, and Iraq. They wrote:
“At present, we embed Russian total oil production levels of 10 mn b/d in our assumptions for 2023 compared to the 9.59 mn b/d figure provided by the IEA. Any meaningful downward deviation from these figures could turbocharge oil prices higher.”
On the other hand, analysts at Citi are worried that crude oil prices will crash to about $45 in 2023. They wrote that Russian crude will remain robust despite the sanctions and that a global recession could hit demand. I am inclined to support Citi’s view that prices will likely remain low in 2023. Besides, Citi’s analysts have been relatively accurate this year.
It is difficult to predict where Brent crude oil prices will be in 2025. For one, it is hard to predict whether there will be another Covid-19 or not. All factors held constant, we expect that Brent will average between $55 and $80 by 2025. This view is based on the fact that countries will continue seeing strong demand for oil and that companies will continue pumping more oil.
This post was last modified on Aug 23, 2023, 08:40 BST 08:40