Crude oil prices are expected to remain elevated in 2023 in the range of $90-$100 per barrel, a Moneycontrol poll of 12 energy experts from brokerages and rating agencies revealed.
Experts said that crude prices, however, would not breach the $100-per-barrel mark in 2023 due to continued subdued demand globally.
Crude oil prices have breached $94 per barrel in September after hovering around $75 per barrel in the first half of the year. The spike in oil prices has been on account of additional supply cuts imposed by Saudi Arabia—the world’s largest crude oil producer—and Russia till the end of the year.
The poll by Moneycontrol also highlighted that supply cut concerns from the oil producing countries would be the most important factor for prices this year.
On September 26, the benchmark Brent crude settled at $93.96 per barrel.
Crude prices by December-end
Energy experts forecast that crude prices will range between $90 and $100 per barrel by the end of December 2023. Out of the 12 respondents, eight said crude prices would remain high in the year and range between $90 and $100 per barrel.
“Supply (of crude oil) will continue to remain tight. However, the US demand is weaker than expected and Chinese demand growth is also lagging compared to the estimates. Therefore, while there is an upside pressure on crude oil prices, in the near term I do not expect prices to go beyond $100 per barrel,” said Probal Sen, Research Analyst at ICICI Securities.
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Demand from China, the largest energy consumer in the world, has been lower than expected in recent months as the Asian country is struggling to revive its economy.
Crude prices by March 2024
Experts remain divided over the movement of crude oil prices for the first three months of 2024. By March-end, four experts said, prices would cool down from the current levels and trade in the range of $80-$90 per barrel. Experts explained that high crude prices are on the back of supply cuts and not demand, which would weigh in on prices in 2024.
“The buoyancy in crude oil prices is not going to sustain for a longer time as it is not fundamentally driven by demand but by supply cuts from Saudi and Russia. Demand is still not very strong. Though stimulus measures have been announced in China, data points are not strong,” said Suman Chowdhury, Chief Economist and Head – Research, Acuité Ratings & Research.
“Interest rates are going to remain high globally which is also going to impact demand. So, these factors indicate that demand is not going to strengthen by March next year, which would cool down prices,” he added.
Of the 12 respondents, two experts forecast prices to trade above $100 per barrel while the same number of experts expect prices to remain between $90-$100 per barrel and $70- $80 per barrel by March 2024.
Major factors giving cues for prices
Supply cut concerns would be the most important factor for crude oil prices in 2023, pointed out experts.
According to the Moneycontrol poll, other than supply concerns, demand from China would also play an important role in tracking the movement of crude oil prices.
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“Demand is now increasing gradually but supply remains low. OPEC+, especially Saudi Arabia and Russia, are continuously cutting their production. So, the market is right now in a demand-supply equilibrium but later on, there might be an increase in demand. If the recent supply cuts continue, there might be an imbalance in demand and supply,” said Somil Gandhi of HDFC Securities.
International oil prices have picked up pace since July after Saudi Arabia announced the additional 1 million barrels per day supply cuts. Other than Saudi, OPEC+ (Organisation of Petroleum Exporting Countries and allies) has also announced production cuts of 1.6 million barrels per day in May 2023.
Experts no longer view geopolitical tensions as the primary driver of crude oil prices, as indicated by a recent Moneycontrol poll. In December 2022, several experts had identified geopolitical tensions as the key factor, but this has likely changed, suggesting that concerns related to the Russia-Ukraine conflict have been factored into current market dynamics.
Fuel prices in India
Retail prices of petrol and diesel in India are expected to remain in the current range, seven respondents forecast.
State-owned oil marketing companies (OMCs) —Indian Oil Corporation Ltd, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Ltd—have left fuel prices unchanged since April 2022 to keep inflation in the country in check. Experts told Moneycontrol that with state and general elections scheduled in the next year, the government would rather opt to provide subsidies to these OMCs than change fuel prices.
“Fuel prices have remained constant for long. I don’t expect the government to increase prices. Last year when prices had gone up, the government had provided subsidies to OMCs but prices were not increased. With elections approaching in May 2024 and OMCs making good profit in Q1 of this year, we don’t expect prices to be changed,” said Prashant Vasisht, Vice President and Co-Head - Corporate Ratings, ICRA.
The majority of the experts predict petrol prices in Delhi to remain in the range of Rs 90-Rs 100 per litre by December 2023. Currently, petrol prices in the national capital stand at Rs 96.72 per litre.
State-owned OMCs revise diesel prices for bulk buyers every fortnight. They are allowed to revise retail fuel prices daily.
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The price revision is based on international product prices. Private fuel retailers typically benchmark their prices to PSU prices. The prices vary as each state has different value added tax included in the final pricing.
Outlook on India’s oil demand
The country’s oil demand is expected to moderately increase in 2023, according to Moneycontrol’s poll, where 11 experts supported the notion.
Experts said that oil demand in a country is the reflection of its economic growth and therefore is expected to rise.
“Increase in oil demand would mainly be due to regular economic growth. Oil demand is a function of the economy and depends on consumption, transportation and airlines. Our economy is expected to grow between 6 percent and 6.5 percent for the current year which means that there will be steady demand coming from India,” said Chowdhury.
India’s import of Russian crude oil
India, which has become a major destination of Russian crude oil since last year, is expected to continue buying oil from Moscow around the current levels.
Seven experts forecast that India’s import of Russian crude oil would be the same while three experts contradicted saying imports from Moscow might decline in 2023.
"Russia is not supplying more oil to other countries; on the other hand, they are cutting exports. Even if India wants to import more (from Russia), it would not be possible, and therefore imports from Moscow would remain in the same range,” said Sen.
Russian oil exports to India plunged over 23 percent to 1.46 million barrels per day (bpd) in August from 1.91 million bpd in July, according to energy cargo tracker Vortexa. Russia has become a major source of crude oil for India ever since Moscow sent troops into Ukraine.
Crude prices and trade deficit
According to the Moneycontrol poll, high crude oil prices would impact India’s trade deficit. While five experts said elevated prices would mildly impact the country’s trade deficit, six experts said it would have a significant impact.
In August, India’s trade deficit widened to a 10-month high of $24.16 billion, compared to $20.67 billion in July.
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“We expect crude prices to remain in the range of $90-$100 per barrel which would mildly impact prices. If prices go beyond that range, which we are not expecting as of now, then it would significantly impact India’s trade deficit,” said Navneet Damani, Senior VP – Commodity Research at Motilal Oswal Financial Services.
India's imports rose to an eight-month high of $58.6 billion in August. Meanwhile, India's exports also rose to a three-month high of $34.48 billion in August but contracted 6.8 percent if seen year on year.
Crude impact on India’s inflation
Energy experts told Moneycontrol that high crude oil prices would have a mild impact on the country’s inflation. Seven experts said rising crude prices could have a mild impact on India’s inflation while three advocated that it could significantly impact inflation.
Damani said the impact of the rise in crude oil prices on inflation would be significant. Food agro prices would start to rise again if the fuel price hike is passed on to consumers, he added.
On the other hand, Chowdhury of Acuite Ratings said with OMCs unlikely to pass on the higher crude price burden in the current year due to the impending state and general elections, it is likely to have a moderate impact on CPI inflation.
India's headline retail inflation rate fell to 6.83 percent in August, as vegetable prices cooled somewhat compared to the previous month. However, inflation in August was higher than the upper bound of the Reserve Bank of India's (RBI) tolerance limit of 2-6 percent.
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