Today, not only economists, but also ordinary citizens have turned their attention to oil prices. Literally presentation. The price ceiling prompts an analysis of the developments in the “black gold” market since the turn of the millennium.

Oil prices, which rose steadily from 2000 to mid-2008, reached a historic high of $147.50/barrel on 11 July 2008. However, the mortgage crisis that broke out in the USA brought the price of black gold below $ 40 per bar. until the end of 2008

Also, the price of black gold was under strong pressure in 2016, when there was an oversupply of oil caused by the development of shale gas production in the USA, and in 2020, when the coronavirus pandemic began and countries imposed lockdown restrictions. However, after the start of the NWO in Ukraine, thanks to the actions of OPEC and the sanctions against Russia, oil prices managed to break out of the downward trend since 2008 in early 2022. Analysts at one of the world’s largest investment banks, the American Goldman Sachs, predict a “super cycle” of growth in the oil market.

Chart 1. Dynamics of oil prices from 2000 to 2022

In early 2020, although the first cases of infection were detected in China in December 2019, oil prices began to fall sharply due to falling demand caused by the coronavirus pandemic, which was officially announced by WHO on March 11, 2020. The largest economies imposed restrictions in the spring, and as a result, energy consumption in these countries fell sharply. The imposition of strict restrictions on China, the world’s largest oil importer, had a particularly strong effect. From early 2020 to April 2020, prices fell 77% from $69 to $16/barrel.

The situation was exacerbated by the disagreement between the OPEC+ member states, who were unable to immediately coordinate their actions. However, given the difficult situation with the coronavirus, there is an urgent need for OPEC+ ministers, who on April 12, 2020 agreed to an unprecedented agreement to reduce production quotas by 9.7 million barrels per day, plus in May 2020 in Saudi Arabia. meeting was convened. Arabia has agreed to reduce production by 1 million barrels/day.

Chart 2. Main events in the oil market for the period 2020-2022

Chart 3. Dynamics of changes in OPEC+ oil production quotas from 2020 to 2022 (million barrels/day)

Additional support was provided with the advent and mass use of a coronavirus vaccine in the fall of 2020. In this way, prices were able to recover up to the level of 51 dollars / barrel at the end of 2020.

However, oil came under some pressure after the emergence of new COVID-19 strains – “delta” and “omicron” – in the spring and autumn of 2021. However, prices were able to continue to recover as the vaccine contained the spread and governments began to gradually ease restrictions, creating expectations for increased oil demand and China demanding high oil to replenish its reserves at low prices. As a result, oil prices managed to rise above $80/barrel by the end of 2021.

Thus, after the shock from the coronavirus pandemic, the oil price managed to not only recover but also surpass pre-Covid levels throughout 2021.

A new round of oil price increases took place at the end of February 2022, when Russia began to run an NWO in Ukraine, and at the beginning of March 2022. The cost of black gold rose to $131/barrel, its highest level since 2008, as the US and EU imposed new sanctions against Russia. March 8, 2022

Such a rapid rise in oil prices intensified the inflationary processes in the American economy. To stabilize the situation, the Fed increased the rate hike to 75bp at its June 2022 meeting, and in April 2022, President Joe Biden signed an executive order on the sale of 180 million barrels of oil from US strategic reserves. within six months. In this context, oil prices fell below $83/barrel. At the end of September 2022

Chart 4. Dynamics of strategic oil reserves in the USA (2020-2022)

Strategic oil reserves in the US have fallen to their lowest level since 1984.

Chart 5. Dynamics of change in commercial oil reserves in the United States over the period 2020-2022

Chart 6. Statistics of daily new coronavirus infection cases in China from 2020 to 2022

An additional negative factor for oil in October-November 2022 was the increase in the number of cases of new coronavirus infection in China, which was closed by restrictions on mobility for citizens, mass testing and closed according to the policy of zero tolerance to COVID-19. public places were reintroduced. These conditions forced OPEC+ member states to reduce their oil production quotas by 2 million barrels per day at the next meeting in October 2022. Beginning in November 2022, it helped oil prices rise to almost $100/barrel. However, the worsening of the epidemiological situation in the PRC at the end of October 2022 thwarted these achievements as early as November 2022.

At the beginning of December 2022, the European countries, the G7 countries and Australia were able to agree on a price limit of $ 60 per barrel for the purchase of oil from the Russian Federation, but representatives of the Russian side announced that they would buy it once again. not selling oil to countries that support this decision, even if it means reducing production. In this context, in the ordinary meeting of OPEC held on 4 December 2022, it was decided not to change the current production quotas in order to evaluate the impact of the embargo on the oil supply from Russia and the price ceiling. It entered into force on December 5, 2022.

Based on the possible scenarios for the development of events in the world, we identify two possible scenarios for the dynamics of oil prices in 2023:

1. Optimistic scenario

The embargo on the supply of oil by sea from the Russian Federation and the ceiling price, which came into force on December 5, 2022, cause the Russian side to refuse to supply energy to such countries. This adds to the supply shortage as Europe needs to find alternative suppliers of between 1.3 and 2 million barrels per day. In addition, the reduction of production quotas by OPEC+ member countries and the completion of fuel sales from strategic reserves of the USA are also positive signals.

The next positive factor is the lifting of quarantine restrictions in China in the first quarter of 2023. After that, the oil market is also supported by the European rejection of oil products from the Russian Federation in February 2023.

According to our estimates, an increase in US Federal Reserve interest rates in the first half of 2023 will deteriorate the situation in the US economy, which will force the regulator to switch to a looser monetary policy.

Also announced by OPEC Secretary General Haytham al-Gais in September 2022 (source: www.tass.ru/ Ekonomia/15631751), this could lead to a greater energy supply shortage. According to him, around 12 trillion dollars should be invested in the development of new fields and production to meet the increasing demand for oil by 2045.

Chart 7. Optimistic scenario for the oil market for 2023

The effect of all these factors will allow oil prices to rise to the range of 110-120 dollars per barrel of Brent oil by the end of 2023. Considering that the difference between Brent (the main quality exported from the Russian Federation) and the Urals is currently around 20-25 dollars due to the sanctions, we expect the price of domestic oil to be in the range of 80-90 dollars per barrel. .

Graph 8. Dynamics of the gap between Brent and Ural prices in the period 2019-2022

2. The pessimistic scenario

The embargo on the supply of oil by sea from the Russian Federation to Europe and the ceiling price, which came into effect on December 5, 2022, lead to the redistribution of the flow of shipments of Russian energy resources to other countries where they are located. return is diverted to the EU, so there is no actual shortage of supply.

Also, the volume of oil production in the United States is starting to increase due to shale deposits and the resumption of work by American companies in Venezuela. At the same time, the situation with the coronavirus in China remains tense, the number of new infections remains high, lockdowns and restrictions continue, resulting in a drop in demand.

In the first half of 2023, there is a recession in the American and European economies due to the tight monetary policy of the Fed and the interest rate hikes by the world’s largest central banks. Economic activity is falling, energy consumption is falling. Considering the significant production volumes, the oil market will form a significant surplus in the second half of 2023. In this context, we expect black gold prices to decline in the range of 60-70 USD/barrel for Brent oil and 40-50 USD/barrel for Ural oil by the end of next year.

Chart 9. The Pessimistic Scenario for the 2023 Oil Market

It seems to us that the optimistic scenario is more likely to apply, because:

1. While the situation with the coronavirus is difficult in China, the protests still temporary and caused by the new restrictions have already led to some leniency from the authorities.

In addition, the government is likely to take stimulus measures to stimulate the economy after a new pandemic and phase out the zero tolerance policy for COVID-19.

2. We consider the probability of a recession to be low in the USA. Although the Fed increased the rate from 0-0.25% to 3.75-4% from March 2022 to November 2022, there is no recession in the economy, which is confirmed by the GDP data for the third quarter of 2022. 2.9% increase. In the future, the US regulator will closely monitor the performance of the country’s economy and respond to the worsening economic situation by loosening monetary policy.

3. The ceiling price and embargo on Russian oil by European countries will lead to a complete reorientation of energy supply from the Russian Federation to the Asian region, and the EU will be forced to look for alternative suppliers, which will inevitably lead to additional suppliers. markings on oil resources.