Overconfident Oil Price Predictions?

2023 Oil price forecasts

The oil fever seems to have subsided, prices have significantly reduced in recent months, and WTI oil futures slid from $120 in early June $95 on July 27. While we are not back at pre-2022 or even pre-pandemic levels, and external factors are still tightening supply, some analysts have been more optimistic than others.

What has led to such optimistic bets on oil bears?

Let’s start with a reality check: Western countries are trying to wean off Russian energy imports, with sanctions fully implemented by the end of the year; Global oil production has minimal capacity to spare; Diplomatic efforts to get oil from Iran and Venezuela remain fruitless for months, and Erratic Chinese quarantine restrictions could spike oil demand anytime.

Despite the heat wave already causing energy troubles, the actual challenge lies ahead – Winter is coming. Extreme temperatures this summer so far have already claimed 1,600 lives in Spain and Portugal alone, soon the heat will change from a life-threatening situation to a vital necessity.

If people are deprived of heating because of oil & gas shortages, the body count would be much higher in the following winter. So far, nothing mentioned above would directly contribute to a lower oil price.

However, all this doom and gloom also brought forth recession fears, a subdued consumer sentiment alone has alleviated the anticipated demand boom during the US driving season and reduced industrial production. But is that sufficient to take the world out of the “high oil seas”?

Mega oil projects to the rescue

Fear not, for there are multiple mega oil projects about to be operational, injecting the market with a fresh, steady supply of crude oil. In 2023, Africa will take the spotlight with a 15% growth in oil production, and a lot more to come.

In terms of developing its energy sector, the African continent is resource-rich while lacking infrastructure and investment, many African countries actually suffered from fuel shortages as enormous oil and gas deposits lie beneath their feet.

Fortunately, several oil refineries will be operational around the fourth quarter of 2022. Most notably, the Dangote Petroleum Refinery in Nigeria is expected to boast a production capacity of 650,000 barrels per day. Once we include other refineries such as Lagos I, Bayelsa III, and Mashi, Nigeria is posed to become the oil kingpin in 2023 with 150 million barrels of crude oil ready to be shipped every day.

All the chatter on crude oil – why not natural gas? Gas pipelines like both Nord Stream projects need considerable time to build. In the case of the proposed Trans-Saharan pipeline, diplomatic, economic, and environmental disputes among various countries have stalled the project for years. Since the pipeline would transport natural gas from Nigeria to Europe, passing through Niger, Algeria, Morroco, etc., bringing more countries into the fold only complicated the situation.

Conclusion

The African oil supply in the near future is likely to replace Russia to serve western markets, solving the energy crisis and lowering inflation. Still, once the pandemic leaves for good and the dust is settled in Ukraine, global consumption would resume and grow, reinvigorating the oil bulls. Check the latest oil price here.