Due to a concomitance of causes mainly related to the global pandemic, Brent Crude has experienced a sharp rise in prices, halted as of June 2022.
Black Gold, once the main source of energy for the engines of both civilian and business transportation has found increasing competition in the alternative offered by hydrogen but especially EV.
Elon Musk with his Tesla models has conquered the world in its main markets i.e. American and Asian but it is also making inroads in Europe especially thanks to the creation of the Berlin megafactory and the widespread and progressive installation of charging stations.
However, not only Tesla but also other players have arisen and to date virtually every automaker offers both a hybrid and an electric alternative.
In Europe, we will do without internal combustion engines from 2035, and even though the Euro 7 legislation seems to be postponing this peremptory deadline we are still moving toward lower emissions that in essence apparently cut out petroleum.
According to analysts at SEB, a major Swedish investment bank, all these factors will lead to change in the year that has just begun.
According to the lending institution, things will be different and the price of crude oil will stop contracting and indeed expand until it reaches $100/bbl precisely because of tight supply and recovering demand, but it is worth noting that it will also be due to a revisiting of the 2035 limit mentioned above, at least for the initial transition phase.
In essence, demand for electric is being normalized while demand for diesel and gasoline seems to be regaining momentum this year, in part because of the margins that are not coming from the investments made by automakers in the electric transition which will have to be generated by hydrocarbons that have always been very effective.
Brent Crude prices
The price of Brent Crude on Friday went above $85/bbl, the highest since 1 December, and is expected to rise.
Bjarne Schieldrop, chief commodity analyst at Swedish bank SEB, said:
“Oil is absurdly cheap today…The energy market will work hard to consume more [of] what is cheap (oil) and less of what is expensive (natural gas and coal).”
From a 14-year high of $139 per barrel at the end of the first quarter of 2022 (following the Russian invasion of Ukraine), crude/Brent prices are in free fall due to the war and likely global recession.
International Monetary Fund Managing Director Kristalina Georgieva said the current year will be complex when compared to 2022 as the US, EU, and China slow down.
Volatility in China and in the US in crude oil prices will be high as America constitutes the largest producer and also the largest consumer of crude oil on the planet and China is right behind in terms of volume of consumption.
“Despite all the macroeconomic gloom from inflation and rising interest rates, SEB had a positive outlook for oil prices in 2023.”
According to Schieldrop.
Oil demand per day in the world will be 1 million to 2.2 million barrels this year according to data from the International Energy Agency, the Energy Information Administration (EIA) in the United States and the OPEC+ oil producers’ cartel led by Russia and its allies.
“The world has lost a huge amount of fossil supplies from Russia due to the war in Ukraine.”
Meanwhile, last month the European union blocked supplies from Russia and implemented a price cap for G7 countries on Russian seaborne crude oil exports that is expected at $60 per barrel.
Commerzbank believes that Brent will be trading more or less at $95 per barrel by June 2023.
“We are convinced that oil prices will rise sharply again in the first half of next year, as the situation on the oil market is likely to tighten significantly. Demand will again outstrip supply from the middle of the year and stocks already prices will decrease further.
We therefore believe that the current price weakness is only short-lived and expect a significant price recovery in the coming months.By mid-year, a barrel of Brent Oil should return to $95. In the unlikely event that prices do not recover, we expect further production cuts from OPEC+.In addition, the US government has announced plans to rebuild strategic reserves at a WTI price of around $70.This should counter a further decline in the price of WTI.”