Crude oil price has staged a slow recovery as investors reflect on the upcoming supply and demand dynamics. Brent rose to $85 on Wednesday while West Texas Intermediate (WTI) rose to about $80. Oil remains significantly lower than its 2022 high of near $140. So, what next for oil prices in 2023?
Latest crude oil news
The most recent crude oil news was the decision by Russia to cease oil deliveries to countries complying with the price cap implemented by EU, UK, and the United States. The ban of oil sales to these countries will happen in February and last for a few months. Analysts believe that it will have an impact on global oil supplies since Russia is one of the biggest exporters in the world.
The other important oil news was the December meeting of OPEC+ cartel. In it, the cartel decided to hold their supply steady in the coming months in its bid to maintain higher prices. With Russia’s output expected to be under pressure in the coming months, analysts believe that the cartel will maintain its policy. Besides, other OPEC members like Angola and Nigeria are struggling to fill their current quotas.
Oil outlook for 2023
Crude oil prices will react to several catalysts in 2023. First, Mainland China and Hong Kong have announced plans to reopen and end the Covid-zero strategy. Such a move will be bullish for oil prices because its restrictions were the reason why prices lagged in 2022.
Second, the US will start replenishing its Strategic Petroleum Reserve (SPR) in 2023. The Biden administration has said that it will start refilling its reserves once oil prices move below $70. As such, the government could purchase 180 million barrels of oil in the coming months.
Third, demand is expected to be strong because of the weaker US dollar. After surging to $115 in 2022, the US dollar index has plunged by more than 9% to about $103. Historically, crude oil does well when the US dollar is weak.
Crude oil price forecast 2023
The daily chart shows that crude oil price has been in a strong bearish trend in the past few months. In this period, oil has formed a descending channel that is shown in black. The downward trend is also being supported by the 25-day and 50-day moving averages. The current price is at an important level since it was the lowest level on September 27.
Therefore, despite some bullish catalysts, I suspect that crude oil prices will continue falling as sellers target the next key support level at $70. A drop below that level will bring $60 to view. On the other hand, a move above the descending channel will signal that bulls have prevailed.
