Global economic uncertainty means oil prices -- and your fuel bill -- will continue to surprise this year
- Written by Carole Nakhle, Energy Economist, University of Surrey
Oil prices have confounded expectations in the first quarter of 2023. Brent – a major global benchmark – hit a low of US$72 (£58) a barrel on March 17[1], while the world’s other main benchmark, WTI, dropped to less than US$66 a barrel. This is a far cry from the nearly US$114 and US$103 a barrel, respectively, reached on the same day a year before[2] following the invasion of Ukraine by Russia, a major oil producer.
These unexpectedly low prices remain even as the war in Ukraine continues with no clear end in sight. Other developments have also failed to boost prices as expected. China, the world’s largest importer of crude oil, abandoned its zero-COVID policy in December 2022[3], creating expectations that Chinese oil demand would quickly return[4] with a vengeance, propelling prices higher. A couple of months before this, OPEC+ (the cartel of certain oil-producing nations) had announced a production cut of 2 million barrels a day[5] (mb/d) – roughly 2% of world supply and the largest cut since 2020.
A surprise announcement of 1.1 mb/d of cuts[6] by OPEC+ on April 2 did boost prices. On top of a 0.5 mb/d decrease announced by Russia in February[7], this has brought the group’s cuts to 1.6 mb/d. And by mid-April Brent reached US$86 and WTI US$83 per barrel.
But oil has now started to retreat again[8], an unexpected development during a war involving a major oil exporter, and at a time when a giant consumer like China is reopening after three years of economic isolation.
This shows that oil price forecasts continue to be unreliable. The economic outlook and Chinese consumption growth are key to demand expectations, while Russia is the wild card in terms of supply. Until uncertainty around these three factors dissipates, global oil markets will not have a clear direction.
Oil price movements:
