Oil prices set for marginal fall in 2023


Customer attendant at Rubis Petroleum Station on Koinange Street Nairobi. FILE PHOTO | DENNIS ONSONGO | NMG

Oil markets forecasting is as fluid and approximate as ever-changing global economic and geopolitical events, especially in countries that produce oil, and also in economic-intensive nations — China, the US, European Union.

Oil markets can also be influenced by market analysts’ speculative bias. Informed judgment and interpretation are needed by whoever is assessing oil market trends.

As we open the year oil prices are fluctuating around $80 per barrel, influenced by weak demands caused by poorly performing global economies some of which are heading towards a recession.

This factor alone will weaken oil demands and prices. However, China which is the most impactful global energy demand determinant is on an economic recovery path after the recent relaxation of zero-Covid restrictions. Expectations are that the Chinese economy will bounce back and push up oil demands and global prices.

Ukrainian war destabilising impacts on global oil supplies have reduced as supply chains have significantly rebalanced with boycotted Russian oil already moving to eastern markets (mostly China and India), and Middle East and US oil heading to Europe, which is now on near zero Russian oil supplies.

The $60 crude oil price ceiling placed on Russian supplies by the West will have a continuing downward balancing influence on global oil prices.

On the supply side, the world looks well supplied with oil, with multinational energy firms increasing production in areas where unit costs are low enough to justify market risks.

This is happening in the Caribbean Sea off Guyana and Suriname, and in low-cost shale production areas of the US. Venezuela could soon be putting more oil on the market.

The Opec+ group will be expected to protect market prices should they fall significantly below $80 by reducing their production quotas.

Based on the above factors, my best assessment is that global prices will remain in the $80-90 range, subject to various nations gradually rebuilding their economic capacity, and further assuming that the Ukraine war does not escalate into a regional war.

In Kenya, current pump prices were based on global crude oil prices in the upper $80, and these are coming down, which points to the chances of retail prices marginally dropping in the coming months.

Reversal or retention of the large price differential between petrol and diesel prices can only be a political policy decision by the government, informed by the need to hedge diesel costs.

Diesel is a critical economic driver in many sectors, while petrol use is deemed to be mostly discretionary.

The writer is a petroleum consultant.

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