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Investing.com – UBS expects energy prices to continue to rise in 2023, as demand recovers in China and emerging markets, and the report expects oil to take the lead in energy markets for 2023.
Analysts of the Swiss bank UBS expect an increase in 2023, for several reasons, first of all the reopening of China.
UBS analysts said oil demand will surpass 2019 levels and hit record highs in the second half of 2023.
The bank’s analysts added that emerging Asian markets, including India, will once again lead oil demand growth in 2023.
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Oil prices
UBS analysts have indicated that prices should rise; Slow down the growth of oil demand and encourage investment in new production activities in the sector.
Bank analysts were expecting oil prices to exceed $100 a barrel in the coming months, trading at $110 a barrel in mid-2023 and late 2023, while West Texas Intermediate crude prices will reach $107 a barrel .
record levels
UBS commodity analyst Giovanni Stanovo says oil demand has increased by 1.6 million bpd, surpassing record levels of 103 million bpd in the second half of 2023.
Giovanni Stanovo added that demand from emerging energy markets, led by India and the Middle East, contributed to the OECD demand recovery in 2022.
Weak demand is likely in the Organization for Economic Co-operation and Development, particularly in Europe and the United States, with US demand expected to grow by 0.1 million barrels per day over the next year and European demand down.
OPEC + production
UBS plans to ease OPEC+ production cuts in 2023 and supply more barrels to the market to cover increased demand, amid lower Russian production, to maintain market balance,
And with OECD oil inventories (both commercial and strategic) remaining at their lowest level since 2004, excess production capacity is expected to continue declining in 2023.
According to the report, the United States will lead non-OPEC+ production growth in 2023, with production rising from Brazil, Norway and Guyana, according to UBS.
UBS expects non-OPEC+ countries to add about 1.3 million bpd in 2023 and US additions will be minimal, and this performance contrasts with historical patterns.
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Russian production
At the same time, Russian oil production is expected to decline this year; Due to the embargo imposed by the European Union on crude oil, and the entry into force of the embargo on Russian oil derivatives, starting from February 15th.
Output growth outside the OPEC+ group is likely in 2023, a modest increase after years of underinvestment.
Russian exports
UBS commodities analyst Giovanni Stanovo said the European Union’s ban on imports of Russian oil, which took effect on Dec. 5, had affected Russian exports.
Despite huge discounts on Russian oil to Brent crude, exports of Russian oil to Asian customers such as China and India have not increased.
The bank stressed that Russia could try to export more crude, but there is a limit to the additional barrels China and India can absorb, according to the report, which the energy platform has obtained a copy of.
China and India
UBS says China rarely relies on a single country to import more than 20% of its crude, and analysts believe it is trying to avoid European mistakes and instead choosing to import from several countries.
And in India, Russian barrels have replaced imports from the spot market and it will be difficult for them to buy more after signing long-term contracts, according to UBS.
Thus, UBS analysts had expected these challenges to lead to Russian oil production falling below the 9 million bpd level in 2023, down from 10 million bpd in early 2022.
risks and triggers
According to UBS, there are growing risks of long-term and massive disruptions of Russian oil production, as well as political destabilization of oil-producing regions such as Libya, Venezuela, Nigeria and the Middle East, which could lead to a sharp decline in supplies for a period of time .
UBS added that there are several factors that will support oil prices in 2023, including a faster-than-expected recovery in oil demand, with increased movements into China and a slow manufacturing response from the United States.
As for the risks of negative developments, they include a sharp increase in prices in the coming months; Because of the turmoil in Russia’s energy sources, it is pushing into recession.
A deep recession or new transport restrictions could affect the recovery in oil demand.
A sharp recession for the Chinese economy in 2023 will pose a downside risk, especially as emerging Asian markets have been the engine of oil demand growth in recent years.
password asia
UBS analyst says three-quarters of global oil demand growth in 2023 will come from emerging Asia; This is more than 1.2 million barrels per day and India, the third largest consumer of oil, will continue to be the engine of consumption.
Stanovo added that China, the second largest oil consumer, is reopening its economy, which should contribute to a year-on-year increase in demand, but the recovery in demand could face many obstacles, with the possibility of imposing new restrictions.
