Crude oil prices have ended 2022 close to where they started the year, despite a broad array of factors that disrupted global energy markets over the last 12 months.
West Texas Intermediate (WTI) crude oil rose 4.5 percent, to about $79 per barrel on the New York Mercantile Exchange in 2022. Brent, the international benchmark for oil prices, climbed roughly 8 percent, to around $84 per barrel on London’s ICE Futures exchange.
Europe and Russia
The military conflict in Eastern Europe had shattered the international energy industry, sending petroleum product prices higher worldwide. As a result, Western governments have pledged to transition away from Russian oil and gas by building vast stockpiles, instituting a price cap on Moscow’s exports, and renewing consumption of nuclear power, coal, and natural gas.So far, this has not led to the bloc’s desired effects.
Russia responded to the price cap on its oil exports, confirming that it would halt shipments to nations that “directly or indirectly use the mechanism of setting a price cap.”
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, believes the price cap will have a negligible effect on oil prices.
“Why? Because most countries that are pointed by Putin’s finger have already stopped the majority of oil imports from Russia,” she wrote. “Plus, the Russian crude is already trading below the $60 per barrel price cap—meaning that there is no direct implication on the Russian supply, at least in the immediate future.”
Although energy prices have eased in recent weeks, they remain elevated. Officials have warned against the European Commission’s plan to install price controls on natural gas, which could exacerbate the region’s energy dilemma. It also imports more from the United States, overtaking the Asian continent as the biggest importer of U.S. crude oil.
How Did the US Respond?
Despite higher prices, the U.S. energy sector has refrained from dramatically boosting output as production is still below pre-pandemic levels. In the first week of January, the industry produced 11.7 million barrels per day (bpd), according to the Energy Information Administration (EIA). By the end of December, output totaled 12 million bpd.President Joe Biden has engaged in a war of words with oil and gas companies.
“While we may not appreciate the cynical attempt to deny the effects of the president’s own ‘no federal oil’ policies, we appreciate that the White House suddenly wants American producers to develop on federal lands. After the Biden administration spent over a year making it more difficult to develop on federal lands while begging Russia to increase its production, the admission—no matter how long it took to make—that American production is preferable to Russian is now welcome,” said Kathleen Sgamma, president of Western Energy Alliance, in a statement in March. “We also appreciate that suddenly environmental groups are very keen for us to develop on existing leases and permits, as they constantly sue to stop any development.”
The rally in crude markets and refinery issues raised gasoline prices, topping $5 a gallon in June. Diesel has also climbed above $6. In response to the dramatic increase, President Biden unveiled a six-month plan to release 180 million barrels of oil from the Strategic Petroleum Reserve (SPR).
The White House has taken responsibility for the notable drop. Still, developments in global petroleum markets have also played a role, including global recession fears, sliding consumption levels, and plummeting Chinese demand.
Up until its December selloff, natural gas prices enjoyed a meteoric ascent, rising as much as 140 percent, before erasing nearly all their gains in the final weeks of 2022.
This year, natural gas surged about 14 percent on the New York Mercantile Exchange, topping $4 per million British thermal units (Btu). In August, natural gas had hit an all-time high of $10 Btu in intraday trading.
Many factors contributed to the energy commodity’s rally in 2022: a brutal winter in North America and Europe, the Russia–Ukraine conflict, lackluster natural gas infrastructure in the United States, soaring liquefied natural gas (LNG) exports, and a severe lack of storage in Europe.
Reading the Energy Tea Leaves in 2023
Tightness might be the best way to describe what could happen in 2023. Many forecasts for the upcoming year suggest that global oil markets will be tight and could slip into a deficit.ING expects Brent and WTI to average $104 and $101 per barrel, respectively, in 2023.
The Organization of the Petroleum Exporting Countries (OPEC) thinks global oil demand growth will be robust over the next year, amid the relaxation of China’s zero-COVID public health policies. The 15-nation cartel believes world oil demand will climb about 2.3 percent, or 2.25 million bpd, in 2023.
Phill Flynn, an energy strategist and author of The Energy Report, told The Epoch Times that OPEC does not have any spare production capacity, so it is not going to waste additional oil when the global economy is slowing demand.
“I think OPEC was playing their cards,” he said. “I think they’re looking at it as more of market management. The Biden administration was the one that got involved in the manipulation of the market by releasing oil. They’re the ones that tried to intervene in the market more than OPEC did.”
Meanwhile, Flynn noted that he is “very bullish on prices going into the new year” amid “significant” tightness in supplies, citing historically low global spare production capacity.
Despite global recession concerns that could initiate demand destruction, Flynn thinks investors might be surprised due to China reopening its economy and reviving imports.
Russia could still possess an immense influence in global oil and gas markets heading into 2023, says Mina Tadrus, the CEO of investment management firm Tadrus Capital.
“Russia’s influence on the energy market extends beyond just its role as a producer and exporter. It is also a major transit country for energy, with pipelines running through its territory to deliver oil and natural gas to other countries,” Tadrus told The Epoch Times. “Overall, Russia’s role in the global energy market is complex and multifaceted. Its influence is felt through its production and export of oil and natural gas, its participation in OPEC and other international organizations, and its role as a transit country for energy. As a result, developments in Russia can have significant impacts on the supply and demand of energy commodities, as well as on prices.”
On the natural gas front, prices are seen trading between $5 and $6 in 2023, according to Tortoise senior portfolio manager Rob Thummel.
“The U.S. is forecasted to grow natural gas production reaching record levels that should help keep U.S. prices rangebound between $5 to $6 per mcf in 2023,” he said in a recent Tortoise Ecofin QuickTake podcast. “The outlook for Europe is a bit more challenging as Europe looks for alternative sources of natural gas to replace Russian volumes. Europe and Asia are expected to compete for global liquified natural gas, so European prices will likely remain at least six times higher than in the U.S.”
But there could be some resistance to kick off 2023 due to mild temperatures and lower heating degree days in many parts of the lower 48 states.
The EIA predicts natural gas prices will average $5.43 per Btu, with U.S. LNG exports topping 12.25 billion cubic feet per day.