Murky waters: Oil tankers, anchored in the Black Sea. The war in Ukraine is just one of three major factors governing oil and gas prices.Murky waters: Oil tankers, anchored in the Black Sea. The war in Ukraine is just one of three major factors governing oil and gas prices.

Russia’s invasion of Ukraine, COVID’s resurgence in China and the threat of worldwide recession, make it hard to tell where prices are headed, expert says.

By Josh RubinBusiness Reporter

Sat., Dec. 31, 20223 min. read

Forecasting oil and gas prices can be a bit like aiming at a dartboard. But these days, analysts might as well be doing it with a blindfold.

Between Russia’s invasion of Ukraine, COVID’s dramatic resurgence in China, and the looming threat of a worldwide recession, it’s a little tough to tell where prices could be headed in 2023, said Patrick De Haan, head of petroleum analysis at GasBuddy.

“There are just so many factors that have an influence on the price of oil right now …. There’s just too much uncertainty to create a credible forecast; $45 is possible, if you get one set of outcomes, and $150 is possible, if you get the other set of outcomes,” said De Haan.

That means prices at the pumps could wind up anywhere between $1.17 and $2.12 per litre. This past summer, they peaked at just over $2 per litre in the Greater Toronto Area, and are now at $1.38 per litre.

A growing number of economists believe the world economy is headed for a recession. But even if it isn’t global, a regional economic downturn could still have a huge effect on the price of oil, and eventually, gasoline, De Haan said.

“Whether or not some countries go into a recession or not, China’s been trying to clamp down on COVID, so it’s been shutting down its economy. It’s the second-largest oil-consuming nation globally. So if China suddenly reverses its policy and reopens its economy and says ‘we’re just gonna live with COVID,’ suddenly, overnight, demand surges and prices go right back up,” said De Haan.

By mid-December, the price of West Texas Intermediate, the benchmark U.S. crude, fell to $74.29 (U.S.) per barrel, after reaching as high as $129.44 in early March.

James T. Williams, a U.S. oilpatch veteran and president of energy analysis firm WTRG Economics, wouldn’t be shocked if the price of oil — and gasoline — stays more or less where it is. Williams estimates that for every $10 change (U.S.) per barrel in the price of crude, the price Canadians pay for gasoline changes roughly 7 cents (Canadian) per litre.

“If you have to make a forecast, where it is right now is probably a pretty good guess where it’s going to be for most of next year, within $5 or $10 per barrel,” said Williams. “If it goes much below that, the Saudis will cut production to keep prices up.”

Still, said Williams, even that cautious forecast could prove wrong.

“If you’re looking at risks, it’s probably greater on the downside. The EU economy sucks, and the U.S. is probably already in a recession,” said Williams, who said forecasts should be taken with a grain of salt, even at the best of times.

“I always tell people who are starting to do forecasts that if you can’t forecast right, forecast often,” Williams chuckled.

At Morningstar, the energy team led by Victor Valance admitted the difficulty in a recent report.

“Projecting the trajectory of oil and natural gas prices in light of today’s extreme cross currents is challenging. This challenge is best characterized by the various price forecasts issued by industry pundits that are poles apart,” Valance and his team wrote.

In the short to medium term, Morningstar sees WTI in a band running anywhere from $50 to $70, and expects it will average $65 per barrel in 2023.

“Our forecasts are still well below current oil prices …. We have assumed that markets could become slightly oversupplied as oil demand softens with a slowdown in global economic activity,” Morningstar wrote.

At BMO and CIBC, forecasters are a little more bullish on the outlook for oil prices in 2023. At BMO, the official outlook calls for WTI to average $90 per barrel in 2023. At CIBC, senior economist Katherine Judge said the bank sees WTI averaging $87 per barrel over the next year.

The biggest reasons for the relatively positive forecast? A global recession isn’t a sure thing, said Judge, and OPEC and other major producers will likely cut production to keep crude prices from plummeting.

“Our expectation is that oil prices could rise over the rest of the year, with OPEC+ cutting its oil output in response to low prices, and reflecting the potential for a global recession to be avoided,” Judge wrote recently.

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