Crude-oil prices will continue to rebound in 2023, according to energy analysts and commodity experts.
The rebound in crude-oil prices began after Russia on Feb. 24 invaded Ukraine. Moscow planned to cut its crude output due to the price cap instituted by the G7 countries on its exports and the OPEC+ countries maintaining their production cuts.
For the past two years, commodities have had a strong run. Oil prices were volatile in 2022 as the global coronavirus pandemic continued.
West Texas Intermediate, the U.S. benchmark for crude oil prices, traded at $57 a barrel in January 2020 and is trading around $73.57 on Jan. 4.
Several experts remain bullish on the energy sector.
WTI is expected to "bounce between $75 and $80 per barrel" during the first quarter since global supplies remain constrained due to OPEC cutbacks and the western embargo on Russian oil, Bernard Weinstein, an energy economist and retired associate director of the Maguire Energy Institute at Southern Methodist University in Dallas, told TheStreet.
The outlook for commodities "looks bright," said John LaForge, head of global real asset strategy at Wells Fargo Investment Institute.
The energy industry is anticipated to produce "more gains as many commodities remain structurally undersupplied and as the bull supercycle is still young," he wrote in a Jan. 3 research report.
Commodity prices often "move together over multiyear periods called supercycles," one of which is believed to have begun in March 2020, LaForge wrote.
If the lagging oil supply the market has seen since 2021 persists, higher prices would result, he said.
The price gains may be "back-end loaded in 2023 as we anticipate a recession in the first half" of the year, LaForge said.
"Within commodity sectors we like energy the best and suspect that oil prices are on track for another positive year, driven by production challenges and strategic opportunities in large oil-producing countries," he said.
By the end of 2023, crude-oil prices are expected to rise to $84 a barrel, according to a survey of U.S. oil and gas executives by the Federal Reserve Bank of Dallas.
To Be Sure, Recession Could Change the Outlook
Concerns about the prospect of a recession in 2023 remain, and economic growth is expected to slow, hurting employment, while housing issues are elevated due to high prices and high interest rates.
Crude-oil prices are likely to decline during a recession, which many economists expect to occur this year.
With "the likelihood of a global recession taking hold by midyear, oil prices could well dip to $60 or lower by the end of 2023," Weinstein said.
Disruptions to the global oil and natural-gas supply chains also could occur if the Russian-Ukraine conflict expands, he said.
"It's also unclear if Russia will actually refuse to sell oil to countries imposing the $60 price cap," he said. "In any event, the expected global recession should dampen demand, thereby ensuring adequate supplies of oil will be available."
Gasoline Prices Heading Higher
Demand during the first quarter of the year tends to be weak seasonally as fewer people drive or fly.
Average retail gasoline prices have dropped by a third since last summer, but they are "unlikely to dip further over the next three to four months due to tight supplies and the loss of Russian refined products previously sold into the U.S. market," Weinstein said.
"The lack of Russian product also helps explain why diesel prices remain elevated even as gasoline prices have declined," he said.
Drivers should expect gasoline prices to increase by 20 to 30 cents a gallon if they are currently paying $2.50 a gallon or less, said Patrick De Haan, head of petroleum analysis at GasBuddy, the Boston provider of retail fuel pricing information.
Prices will rise 10 cents to 25 cents a gallon for drivers living in areas where gasoline currently costs $2.50 to $2.75 a gallon, while stations selling gasoline for $3 a gallon could soon increase prices by 5 to 10 cents, he said.
By late winter of 2023, prices could start inching up and reach $4 a gallon by the summer.
"Barring unexpected challenges, prices in 2023 should return to normal seasonal fluctuations, rising in the spring, and dropping after Labor Day into the fall," De Haan said. “2023 is not going to be a cakewalk for motorists. It could be expensive.”
On an average basis for the year, gasoline prices will decline by 50 cents a gallon in 2023 from the average 2022 price of $3.49 a gallon, De Haan said.
Improvements in refinery capacity will "help alleviate gasoline and diesel prices, though high levels of uncertainty remain amidst Russia’s ongoing war on Ukraine and continuing economic concerns," he said.
Energy Firms to Spend More in 2023
Exploration and production companies expect the price of West Texas Intermediate to average $73 a barrel in 2023 and they plan to allocate more capital for expenditures this year due to gains in crude oil prices, executives said in a recent Dallas Federal Reserve's energy survey.
The higher crude oil price was one factor used for determining the budget for capital expenditures in 2023. The median estimated price of oil was $75 a barrel.
In 2022, executives used $64 a barrel as the basis for their budgeting.
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