Several major banks are predicting a return to $100 crude oil, though that's a tall hill to climb given lingering fears of a global recession. File photo by John Angelillo/UPI | License Photo
Jan. 4 (UPI) -- Crude oil prices will likely return to $100 per barrel given the impact of Western sanctions on Russia and a lack of investment in new production, analysts from Swiss investment bank UBS said Wednesday.
Crude oil prices are on a steep decline to start 2023 amid concerns of a world-wide recession. The head of the International Monetary Fund, Kristalina Georgieva, said during the weekend that she expected one third of the global economy to suffer contractions this year, with Europe getting hit the hardest.
West Texas Intermediate, the U.S. benchmark for the price of oil, was down about 4% as of 10:20 a.m. EST to trade at $73.58 per barrel. Brent, the global benchmark, was suffering similar losses on the day to trade around $78.67 per barrel.
Analysts at UBS, however, see WTI hitting $107 per barrel and Brent topping out at $110 for the year, citing lingering concerns about the lack of supplies that would result from Western sanctions on Russia.
"The energy problems of 2022 -- redirected Russian supply, chronic underinvestment in upstream capacity -- are here to stay," they wrote in a report emailed to UPI. "And with demand recovering in China as well as in emerging markets overall, energy prices should continue to climb in 2023."
it would be a stretch to see commodity prices collapse to this level anytime soon given forecasts for a return to $100 crude oil. File photo by John Angelillo/UPI
Forecasts from UBS are well below the peak levels from 2022, which saw WTI move above $120 per barrel in June 2022, but still elevated considering recent trends in the price of oil.
Forecasts for a higher-for-longer future for the price of oil were offset last year by the rise in exports from the likes of the United States and Norway, which have taken a large chunk of the Russian market share in Europe.
U.S. crude oil production is expected to reach record levels this year at around 12 million barrels per day, though UBS expects only modest increases in output in the coming years due to a lack of investment in exploration and production.
"Shale producers are more focused on capital discipline today -- such as reducing debts or paying higher dividends -- instead of increasing production growth," analysts wrote. "Another factor limiting growth is the fast rise in costs due to elevated inflation, a tight U.S. labor market, and other supply chain constraints."
Some of those concerns, namely labor shortages and supply-chain bottlenecks, were shared by respondents to the latest energy survey from the Federal Reserve Bank of Dallas, though those respondents said they expected WTI to end the year in the mid-$80 range.
Stephen Brennock, an analyst at London oil broker PVM, said in an emailed note that UBS is certainly not alone in calling for $100 per barrel oil, with both Goldman Sachs and Commerzbank calling for a return to triple digits.
So far, however, any bullish signals in the commodities market, Brennock said, is falling on deaf ears.
"Worries about the state of the global economy are front and center of traders' minds and will remain so for the foreseeable future," he wrote.