Crude oil prices could reach $121 per barrel when China’s economy reopens following a string of Covid-related restrictions, Daniel Yergin, vice chairman of S&P Global, told CNBC.
“If China gets over Covid… then you add a lot of demand to the market,” Yergin explained, also saying that S&P Global’s base case for oil prices remains $90 per barrel of Brent, although there is a downside potential for a slump to $70 per barrel.
The cheaper-oil scenario would play out in case of a global recession, according to the energy expert.
According to S&P Global’s forecast, China’s crude oil demand could rise to 15.7 million barrels daily next year, which would be a 700,000-bpd increase over 2022.
Meanwhile, supply remains tight even though Russian flows are being re-routed to Asia, notably China and India, while underinvestment in new output is keeping a lid on supply growth.
China and a possible recession were recently named as the two drivers for the oil market next year by BlackRock in a market outlook for next year. According to the asset manager, the recession is a certainty with plenty of warning signs such as central banks’ aggressive rate-hiking as they “overtighten” their monetary policy in their efforts to rein in inflation.
Another factor that would affect oil prices next year is Russia’s response to the oil price cap that the G7 and the EU imposed on shipments of Russian crude on December 5.
At the moment, the Kremlin is finalizing its response, but in the meantime, Russian oil is trading below the cap, so exports have not been disrupted in any palpable way.
In the interim, investors are turning to the oil and gas sector for returns, Yergin noted in his talk with CNBC, even though some are applying pressure on oil and gas producers to increase their transition commitments.