The pulse between supply and demand

After the middle of the year, it is appropriate to reflect on the behavior of the oil market, and take note of the lessons it leaves us for the second half of 2023. Recent years have been accompanied by fluctuations in hydrocarbon prices, with high sensitivity to announcements and indicators that explain the development of economic and geopolitical activity. The year 2022 ended with the expectation of moderation in demand as a result of the expected slowdown in the global economy. This feeling was temporarily interrupted With China announcing the end of its zero-tolerance policy against COVID-19 And flexibility in activity in various economies around the world. However, the persistent indications of weak global activity, especially in China in recent months, generated expectations of moderation in oil demand that dominated its price behavior.

The show also faced a changing scenario. At the end of 2022, expected production cuts by Russia, Due to restrictions on buying from Europe and a price cap, sentiment has caught on in the markets. However, during 2023, the decline in supply from this country was limited, avoiding sanctions through markets such as China or India. In this environment, with the market headed for lower prices, OPEC+ agreed to cut production, a decision that added to Saudi Arabia’s voluntary supply cut announcements. This strategy succeeded in keeping the price in the first half at around $80 per barrel of Brent (the reference crude in Europe), down significantly from the average for the first half of 2022, when it was 105.

For the second half of 2023, a tight scenario was expected in the crude oil market, with strong demand, especially due to expectations of the behavior of the Chinese economy and the lack of oil availability, Not only because of the voluntary OPEC+ cuts But also through a curtailed Russian show. The market appears to be excluding the context of lower-than-expected demand along with production containment, resulting in an expected Brent crude price per barrel somewhat higher than in the first half, but much lower than first estimates. At BBVA Research, we expect $83 in the second half, similar to the analysts’ average, although lower than their forecast from two months ago (nearly $4 per barrel higher than current forecasts). So for the full year, the price will be around $82, which is much lower than the $99 in 2022, but still at a good level for producers.