Oil prices will hover near $90 in 2023 as Russian production bounces back to pre-war levels, JPMorgan says

Russian President Vladimir Putin speeches during the Council of Lawmakers at the Tauride Palace, April 27, 2022 in Saint Petersburg, Russia
Russia is Europe's biggest oil supplier. Getty Images

  • Oil prices will hover around $90 per barrel in 2023 as Russia boosts its production to pre-war levels, according to JPMorgan.
  • The bank lowered its 2023 oil forecast by $8 because of the expected supply increase from Russia.
  • The refilling of the special petroleum reserve by the Biden administration should also support oil prices.
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Oil prices will head higher in 2023, but not as much as JPMorgan originally expected, according to a Monday note.

The bank lowered its 2023 Brent crude oil forecast to $90 per barrel from $98 on the grounds that Russia will normalize its oil production to pre-war levels. With Brent crude oil currently trading at $83.55 per barrel, JPMorgan's forecast represents just 8% upside potential next year.

If Russia's oil production levels normalize as JPMorgan expects, it will likely find a big buyer in India. "Essentially, the US signaled it is 'happy' for India to continue buying as much Russian oil as it wants... as long as it doesn't use Western insurance, finance, and tankers," JPMorgan explained. 

Dynamics surrounding the Biden administration's need to refill the US strategic petroleum reserve should also be supportive of oil prices going forward. About 200 million barrels have been depleted from the reserve so far this year as the Biden administration sought to ease inflationary pressures from high oil prices.

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JPMorgan believes the first half of next year is "the optimal window for the US administration to replenish oil SPR inventories" as concerns of an economic recession grow. That's because concerns surrounding economic demand typically push oil prices lower. 

But even with a potential slow-down in the global economy, there should be solid oil demand driven by a continued normalization of services from the COVID-19 pandemic, JPMorgan said. That's especially likely if China finally emerges from its strict COVID lockdown policies.

"Global traffic has returned to slightly above 2019 levels, despite Asian road activity recently declining amid China's new lockdown wave. European road traffic has steadily climbed back to above 2019 levels, while North American road traffic has remained flattish near 103% of 2019 levels. Similarly, ex-China, global flights have held steady at little over 85% for most of the year," JPMorgan said.

The OPEC+ alliance is likely to "do the heavy lifting" to keep oil markets balanced next year, JPMorgan said. That could lead to slight oil production cuts next year from OPEC to help prop up oil prices, as US shale production continues to have less influence over prices compared to a few years ago.

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There are a range of geopolitical and macro factors that put JPMorgan's oil forecast at risk, according to the note.

The biggest downside risk to their oil projection is a settlement between Russia and Ukraine. Any news of a ceasefire or peace agreement would spark a reset in oil prices back to pre-war levels at about $75 per barrel, JPMorgan said. 

Other risks to JPMorgan's 2023 oil forecast is timing of a potential China reopening and a global recession. Both of which would drive oil prices significantly depending on the timing and magnitude of both factors. 

But even in the event of a global recession, JPMorgan doesn't expect oil prices to fall by more than $15 per barrel thanks to the capital discipline showed by most oil producers in recent years.

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