Soaring oil prices on the heels of this week’s announcement by the Organization of Petroleum Exporting Countries (OPEC) and its partners sent analysts scrambling to hike their estimates for the rest of 2023.
The surprise plan to cut production has lifted the price of US benchmark West Texas Intermediate (WTI) (CL=F) more than 20 per cent above its recent low point in mid-March. The cuts consist of a voluntary 1.157 million barrels per day reduction set to take effect in May. Russia is extending its reduction of 500,000 barrels per day for the rest of the year.
The move by OPEC+ to firm up prices comes as China attempts to catch up to the state of post-COVID reopening in North America and Europe, according to Andrew Botterill, Canada’s national leader of energy and chemicals at Deloitte.
“Economies are waking up,” he told Yahoo Finance Canada. “The world is pretty confident in firms [oil] demand, at least in the short term.”
Deloitte’s latest energy, oil, and gas price forecast, released on Wednesday, calls for the price of WTI to average US$75 per barrel in 2023.
“You could see some upward pressure on that,” Botterill said on Monday. “We could see it in the US$80 to US$85 range.”
RBC Capital Markets analyst Michael Tran also boosted his WTI estimate following the OPEC+ announcement. He now sees a barrel averaging US$84.50 this year, an increase from the US$81.25 he called for on March 29.
“Never have we revised our WTI forecast twice in two weeks,” he wrote in a note to clients. “Major oil benchmarks have both plunged by over 17 per cent, and rallied by over 20 per cent during the past 30 days. Try building a model that predicts that price action.”
Revisions were evident on Wall Street as well. Goldman Sachs Commodities Research analysts increased their forecasts for European Brent by US$5 per barrel to US$95 (vs. US$90 previously) for December 2023, and to US$100 (vs. US$97) for December 2024.
“The surprise cut is consistent with the new OPEC+ doctrine to act preemptively because they can without significant losses in market share,” wrote researchers led by Dean Struyven in a note to investors.
Analysts at Capital Economics also raised their 2023 price for Brent to US$90 per barrel, from US$85 previously.
Despite the burst of bullishness, RBC’s Tran cautions that “investor sentiment remains fleeting.”
“The greater the passage of time without further macro contagion, the more comfortable the market becomes that oil prices can trend higher,” he wrote.
“However, being bullish is different from deploying risk.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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