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The Anticipation of Crude oil in 2023

Harvest Global Markets :

Crude oil futures spent much of 2022 surging as demand for transportation fuels to travel returned. Russia’s invasion of Ukraine and production cuts from the world’s largest oil-producing nations and their allies (OPEC+) squeezed supply. Brent crude futures rose above $139 per barrel, Crude Oil rose above $115 in March as Russia invaded Ukraine, and then later rose again as buyers reckoned with the bottleneck of two years of refinery closures during the pandemic. To combat rising inflation worldwide, central banks enacted a series of interest rate hikes intended to cool off the economy and the labour market.

Rising interest rates increased the value of the U.S. dollar, which pressured oil prices as a strengthening dollar makes the greenback-denominated commodity more expensive for other currency holders. OPEC+, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, angered the United States and other Western nations in October when it agreed to cut its targeted output by 2 million barrels per day (BPD), or about 2% of world demand, from November until the end of 2023.

OPEC+ said it cut output because of a weaker economic outlook, but the move did not increase prices. About half of OPEC’s cut was on paper only, as the producing group has fallen routinely short of its targets. Meanwhile, U.S. production has picked up. Domestic output has grown slowly, but it recently hit 12.2 million barrels per day, the highest since the first wave of the coronavirus pandemic in March 2020. The market’s rally was also built partly on fears that a series of sanctions imposed on Russia by European nations and the United States would throttle that nation’s supply. Threats by Russia to cut production by between 500,000 and 700,000 barrels per day.

Oil prices are attempting to extend the ongoing relief rally this week after closing over 4% higher last week. On Thursday, the prices extended gains for the fourth consecutive day amid tighter supplies of U.S crude and Heating Oil.The rise in oil prices comes after the new government data showed a bigger-than-expected decline in U.S. crude inventories to 5.89 million barrels for the week that ended on December 16. Furthermore, lists of distillate stocks, including jet fuel and heating oil, also tightened contrary to analysts’ expectations. The stockpile drop follows a recent storm on Christmas weekend in the United States.

 

Commodity bulls are now hoping that the ongoing move higher in oil prices could sustain into 2023 amid falling supply and expectations that the winter in the U.S. and Europe will get more severe. Though there are still major uncertainties surrounding the oil market, he added. These uncertainties include the U.S. central bank’s decisions, China’s demand, and Russia Ukraine war.

Still, in winter, Russia plans to intensify its attack on Ukraine as Moscow tries to turn around losses on the battlefield and limit political backlash at home.

Heightened fighting in Ukraine often leads to a spike in crude prices as it does not just lead to geopolitical fallout but also a further squeeze in the availability of Russian oil to the world after the West’s ban on all energy imports from the country and the G7’s $60-per-barrel price cap set on each barrel exported by Moscow. 

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