The U.S. government lowered its forecast for the price of crude oil, but cautioned its forecast was challenged by recent developments related to Russian crude oil. Photo by Jim Ruymen/UPI | License Photo
Dec. 6 (UPI) -- The U.S. federal government on Tuesday lowered its forecast for the price of Brent crude oil, but said its forecast was complicated by trying to figure out what happens next with Russian crude.
The price for Brent crude oil, the global benchmark for the price of oil, was trading at around $80 per barrel during mid-day trading on Tuesday, down about 3% on the day. That followed a 3.4% loss during the previous session.
Crude oil prices in general have been supported for much of the year by a geopolitical risk premium emanating from the war in Ukraine, resurgent demand and supply-side shortages. Brent hit an all-time high for the year at $123.07 per barrel on June 9 amid concerns that Western pressure on Russia, a major oil and gas producer, would lead to dramatic shortages on a global scale.
The U.S. Energy Information Administration, part of the Energy Department, said in its short-term forecast for December that it expected the price of Brent crude oil to average $101 per barrel for all of 2022 and dip to $92 per barrel next year, a 0.6% and 3.1% revision lower, respectively.
EIA attributed the drift away from triple-digits to lackluster growth in the world's major economies. COVID-related lockdowns in China, while easing, has led to a considerable decline in demand in the world's second-largest economy, behind the United States.
"Although we expect some downward oil price pressure could emerge in the second half of2023 based on our forecast of rising oil inventories, that pressure will likely be balanced by the ongoing possibility of supply disruptions or production growth that is slower than our forecast," the report read.
An increase in global crude oil inventories would largely reflect a decline in overall demand. The EIA cautioned, however, that there is a high degree of uncertainty about its latest forecast given recent actions targeting Russia.
On Monday, the Group of Seven economies, plus Australia and the European Union, agreed to put a $60 price cap on Russian crude oil shipments, hoping to keep flows moving while at the same time limiting what goes in the Kremlin's war chest. At the same time, EU members put a moratorium on waterborne imports of crude oil from Russia, though products continue to move through its Druzhba pipeline to Europe, among the biggest such pipelines in the world.
"We expect that most of Russia's crude oil exports that will no longer go to Europe will find a destination elsewhere," the EIA's report read. "However, we expect Russia's oil production will continue to decline in 2023, largely because a number of countries will decrease their imports of crude oil and petroleum products from Russia."
Explaining the decline in oil prices against otherwise bullish developments, analysts at Swiss investment bank UBS said the sentiment on oil remains negative and the consequences of actions related to Russia have yet to fully materialize.
Meanwhile, more rate hikes from the U.S. Federal Reserve could create economic headwinds, while much of Europe is still dealing with double-digit inflation.
But a separate report from Canada-based energy data firm Enverus said $100 oil is still in play.
"Near-term recession concerns and oil price weakness should not obscure a tight oil supply outlook that should spark $100 per barrel oil in 2023," its report read.