BAKU, Azerbaijan, August 7. Brent prices are projected to stand at an average of $80/bbl for 2023, with a further increase to USD 83/bbl in 2024, Trend reports.
The strengthening of oil prices during this period aligns with expectations of Fitch Solutions, driven by seasonally higher demand, unilateral cutbacks by Saudi Arabia, and declining Russian exports. Throughout the year, the market balance has been progressively tightening, fueled by growing oil consumption, supply disruptions among key producers, and renewed cuts by OPEC+.
Despite these favorable factors, bearish macroeconomic sentiment has thus far hindered the pass-through of these positive influences to prices. Presently, front-month Brent crude is trading around USD 85/bbl, reinforcing the belief that the market will continue to receive robust support during Q3. However, Fitch Solutions anticipates a softening in prices over Q4 and Q1.
Looking ahead, the company maintains a generally optimistic outlook for next year's market conditions. As the economic downturn reaches its bottom and global trade flows pick up momentum, it expects a more favorable landscape, which could contribute to higher oil prices in 2024.
In the volatile world of oil markets, Brent crude oil prices have shown high sensitivity to global economic conditions. Recent developments have demonstrated that major selloffs were triggered by events originating outside of the oil market itself. The first significant downturn, witnessed in March, was prompted by strains in the banking sector. Subsequently, in April, a bearish shift in high-frequency data releases in key markets, particularly in the eurozone and Mainland China, led to another dip in prices.
Amid the ongoing economic slowdown, experts predict the likelihood of short and shallow recessions in both the eurozone and the US, which could result in reduced physical oil demand and affect overall market sentiment. Nevertheless, this deceleration has been widely anticipated, and its impact is believed to have been mostly factored into the current Brent crude oil prices.
On the brighter side, analysts have expressed moderate bullishness regarding the outlook for global real GDP. The latest forecasts show a projected growth rate of 2.3% for 2023, up from the 1.9% forecast in January. The resilience demonstrated by the US and eurozone economies in the early part of the year has contributed to these upward revisions. Notably, the possibility of a 'soft landing' for the US economy has gained traction, supported by ongoing strength in the labor market.
While global economic growth may slow down, there is also hope for an upswing in trade activity over the next few quarters. Several high-frequency indicators suggest that the current downcycle may be reaching its bottom, offering a potential boost to the oil market through increased demand and alleviating recession-induced concerns.
Despite these positive sentiments, risks to the outlook remain, with interest rate hikes having put continuous downward pressure on oil prices throughout the year, causing concerns for overall economic growth. Economists believe that the current tightening cycle is nearing its peak, and recent rate hikes by the European Central Bank and the US Federal Reserve may have been the last in this cycle. However, a significant loosening of monetary policy is not expected to occur until 2024. Policymakers and investors also face potential inflationary pressures in the latter half of the year, driven by fading base effects and strengthening energy prices, which could lead to cautious actions in the market.
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