Crude oil hits fresh 2023 highs with Brent at $94/barrel, experts see further upside

Crude oil prices have sharply risen of late, with Brent/WTI crude oil price rising to $94 per barrel in just 3 to 4 weeks.

Crude oil prices surged to a 10-month high on September 15, embarking on their third consecutive week of gains along with a fresh high for 2023. Prices increased as much as 3 percent in this week alone and the upward trend has translated into a 15 percent boost in oil prices in the month of August and a significant 13 percent year-to-date rise.

The surge came after China cut banks' cash reserve requirements by 25 basis points to boost its economic recovery and potentially increase oil demand. Another significant driver behind this rally has been the recent strong buying activity from hedge funds over the past two weeks after Saudi Arabia and Russia extended their voluntary output cuts till the end of 2023 to support prices.

Also Read Crude prices to remain elevated for 2023 after touching $90/bbl amid supply cuts: Energy experts

Earlier this week, the International Energy Agency and Organization of Petroleum Exporting Countries both warned that the market would be in deficit through the end of the year. Expectations of tighter supply outweighed worries about weaker growth across economies.

"Supply curbs are definitely a major factor boosting the oil prices, especially after Saudi Arabia and Russia extended their previous curbs till year end. However, improving demand outlook is also at play here. Robust economic data from US prompted investors to push back against recession, while recent set of Chinese data showed that Beijing is also gathering pace amid stimulus measures," said Ravindra Rao, head of commodity research at Kotak Securities. "Improving demand outlook and tightening supply is keeping the prices buoyed."

Looking at the price trajectory, crude oil started the year at $82 a barrel (bbl), dipped to $70 a bbl in June, and now stands at a robust $94 a bbl. The rapid price jump from $82 a bbl on August 23 to the current $94 a bbl illustrates the immediacy of the surge.

Source: Bloomberg

According to Mark Matthews, head of research at Asia for Julius Baer, crude oil prices have jumped to above $90 per bbl only due to a sudden supply cut as Saudi Arabia has reduced production. It may not sustain, and will likely fall back to $75 per bbl by 2024 as Saudi Arabia is encouraged to resume supplies due to the competition from other nations.

As we move into Q3FY24, deficit estimates are a topic of concern. OPEC predicts a deficit of 3.3 million barrels per day (mbpd), while the IEA estimates a more moderate 1.1 mbpd deficit, and the EIA sees a deficit of 230,000 barrels per day.

Also Read: Oil Minister comfortable with crude oil prices in range of $75-$80 per barrel

International crude oil prices directly impact India as the country is a net importer of crude oil, with over 85 percent of its requirements being met by imports. Due to rising oil prices, the Indian government reimposed the windfall tax on domestic production of crude oil in July after a gap of two months.

Global oil demand in 2023 is another critical factor. The EIA forecasts a demand increase of 1.8 mbpd, the IEA projects a 2.2 mbpd rise, and OPEC anticipates a 2.4 mbpd increase.

Also Read: China boosts liquidity with medium-term policy tool

Investors and analysts are closely watching the trajectory of Brent prices and crude's outlook for 2023. Saxo Bank predicts a price of $94 a bbl, Probis Securities goes even higher at $100 a bbl, Goldman Sachs offers a target of $105 a bbl, while Fat Profits expects prices to range between $90 and $95 per bbl. Bank of America takes a more conservative stance averaging at $90 a bbl and Wood Mackenzie forecasts a rate of $88 a bbl for crude.