By: Midland Reporter-Telegram – China is expected to set the tone for oil markets in 2023.
Peering into their crystal balls, analysts at S&P Global Commodity Insights offered their thoughts on energy markets for 2023.
“China’s COVID policy will be the top issue in energy markets,” said Dan Klein, head of energy pathways with the company. Near-zero growth in energy demand in 2022 due to COVID lockdowns served as a safety valve for oil, natural gas, and coal markets as Europe sought to replace Russian energy supplies, he said.
But that will likely change in 2023 as China eases its COVID protocols, leading to a surge in its energy demand to 3.3 million barrels of oil equivalent per day, representing 47% of global energy demand growth in the coming year, Klein said.
“Pent-up demand is set to be unleashed,” he cautioned. He added that India will also play a key role with its rising demand for oil and its purchase of significant amounts of Russian supply that otherwise would have gone to Europe.
Those two countries will have a big impact on markets, said Klein, “but reports of U.S. shale’s demise are greatly exaggerated.”
It’s clear the nation’s shale oil and gas producers are operating differently than a decade ago but “ignore the resource of shale at your peril,” he said.
The forecast is for the growth of 500,000 to 600,000 barrels of crude and natural gas liquids in 2023. That growth is still relatively robust, he added, though producers are clearly listening to calls for fiscal discipline by not ramping up activity. Still, he said, oil prices remain well above break-even levels of $50 per barrel, and, he noted, over 90% of the 180 billion barrels of technically producible oil has yet to be developed.
S&P Global forecasts U.S. shale oil supply will grow about 700,000 barrels a day in 2023, but global oil supplies in 2023 will center on Russia and how the rest of the world adapts to European Union sanctions and Group of Seven restrictions in reaction to Russia’s invasion of Ukraine, said Shin Kim, head of oil supply and production analytics.
“We see steady, robust growth out of U.S. shales,” she said, “and Texas has really incredible growth.”
While markets will also be watching how Saudi Arabia cuts production to maintain price levels — how deep the nation cuts and how fast it cuts output — she said not to overlook non-OPEC producers.
“Non-OPEC is underappreciated in terms of growth,” she stated. “Don’t forget the Gulf of Mexico, Brazil, and Canada. There are projects in Norway, Guyana, all non-OPEC, non-Russian, non-U.S. projects that will be key.”
Energy policy uncertainty will be the largest influence on the direction of oil supply in 2023, said Paul Sheldon, chief geopolitical advisor, led by the sanctions on Russian oil exports. How those sanctions take form and how Russia reacts will be key, he said.
“An outsized supply disruption from the world’s second-largest oil exporter would test the limits of the world’s spare capacity, while a relatively muted dislocation would trigger politically complicated OPEC+ production cuts,” Sheldon said.
Also playing a role is the U.S. Strategic Petroleum Reserve, he added. Withdrawals from the SPR did have an impact, he said. “Now we wonder when the government will start buying back barrels.”
