Entering 2022, the view was the global oil market would remain tight but balanced, with Brent averaging $90 per barrel (bbl) for the year. With the onset of the war in Ukraine, J.P. Morgan Research opted to raise its 2022 average Brent price to $104/bbl and 2023 price to $98/bbl, with prices peaking in the second quarter of 2022 at $114/bbl.
“After maintaining our price view for eight months, we now opt to shave $8 off our 2023 price projections, on our expectations that Russian production will fully normalize to pre-war levels by mid-2023. Despite more pessimistic expectations for balances over the next few months, we find the underlying trends in the oil market supportive and expect global Brent benchmark price to average $90/bbl in 2023 and $98/bbl in 2024,” said Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan.
Commodity price forecasts for 2023, with Brent averaging $90 per barrel, WTI averaging $83 and gold averaging $1,860 in the fourth quarter of 2023.
There are strong reasons to expect a relatively robust 1.3 million barrels per day (mbd) of oil demand growth next year, despite expectations for the global economy to expand at a sub-par 1.5% pace in 2023. There is still substantial room for a cyclical rebound, driven by a continued normalization of demand for mobility fuels like gasoline, diesel and jet fuel to pre-COVID levels.
“Our forecast of a $90 Brent in 2023 centers on the view that the OPEC+ alliance (Organization of the Petroleum Exporting Countries and allies) will do the heavy lifting to keep markets balanced next year,” added Kaneva.
On the structural side, expansion of the world’s oil supply growth is expected to slow in 2024, reviving the need for OPEC’s crude. Growth from U.S. shale producers, traditionally the most responsive to changing market conditions, is expected to more than halve from 1.1-1.2 mbd this year and next to 0.5 mbd in 2024.
For base metals, 2023 will be a transitional year, with prices once again re-testing the lows approached earlier this year around mid-2023.
“After bottoming over mid-year, a more sustained recovery in base metals prices is set to unfold in the last few months of the year,” said Greg Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan.
Relative to base metals, the outlook for precious metals is more positive, with all but palladium expected to end 2023 higher. With the Fed on pause, decreasing U.S. real yields will drive the bullish outlook for gold and silver prices over the latter half of 2023. Gold prices are forecast to push up to an average $1,860 per troy ounce in the fourth quarter of 2023.
“Even with a bullish baseline gold and silver forecast, we think risk is skewed to the upside in 2023. A harder-than-expected economic landing in the U.S. would not only attract additional safe haven buying, but the rally could become supercharged by more dramatic decreases in yields if the Fed more rapidly unwinds tighter fiscal policy,” added Shearer.
