How can investors use the current international price cap on Russian oil to better predict how the commodity will behave in 2023, particularly in the early part of the new year? First, it’s important to review the basic facts about the cap, who imposed it, and what its likely effects will be. The main point to remember is that a consortium of countries is working to stifle Russia’s ability to fight the war in Ukraine.
Oil barrels are pictured at the site of Canadian group Vermilion Energy in Parentis-en-Born, France, October 13, 2017. REUTERS/Regis Duvignau
Those nations include the entire EU group, Australia, and the G7 countries. The rule sets a $60-per-barrel cap on Russian oil purchased by consortium nations as well as other punitive measures meant to financially weaken Moscow but to keep the flow of petroleum from that nation intact. It’s important to note that even if the capping works, it only affects about 65% of all petrol exported from Russian soil.
Making Realistic Estimates for Trading Purposes
Whether a partial ban on the nation’s exports and a price cap that is not far from current free market prices will cause Moscow to withdraw from Ukraine is highly questionable. Investors who use a reliable crude oil trading platform to buy and sell the commodity need to do in-depth research on economic trends. In order to predict oil prices in light of all the economic interference from G7 and EU nations, it’s necessary to examine a few undeniable facts. What are possible value ranges for non-Russian crude, what are potential demand levels in early 2023, and how can investors use various financial instruments to capitalize on the changes?
Possible Price Ranges for 2023
Considering that international per-barrel pricing reached close to the $120 mark as recently as June 2022, it is significant that values have already begun to fall to a level just above the $80 mark, with more room for decline expected in the coming months. Indeed, if current trends continue, the cost for one barrel of crude could sink to $63 by April. At that point, unless G7 and EU partners reset the cap, it would be rendered useless. The bottom line is that crude is on pace to temporarily dip to just above $60-per-barrel by April, but could easily, amid increased summer demand, rise back up to the $80 line by mid-July or late August.
Why the Downward Pressure?
Expected recessionary forces at work in late 2022 could slow the global economy down significantly in the first half of the following year. Generally, when widespread manufacturing, retail, and other sectors slow down, there’s a concurrent decrease in the demand for petroleum. That decrease comes from both the commercial and retail sectors. Companies curtail operations and need less oil. Likewise, individuals drive less, utilize financial hacks to increase savings, and make fewer purchases at the pump. In totality, the months from January through April will likely witness decreased demand for all petroleum-based products.
Summer Behavior and the War
There are two core factors that could have an impact on the cost of a barrel of crude during the middle of next year. After an early fall in demand, as noted above, the traditional summer increase in consumer activity takes place. Much of it is due to families taking long car trips, flying, and otherwise moving about during warm months. However, the massive question mark in the scenario is the Ukraine-Russia war, which has been going on since February. Should it continue or expand by the one-year mark, there’s a chance that in spite of efforts to block reliance on Russian fossil fuels the global petroleum market will sustain long-term effects. Those results could include a near-permanent division of the world into two completely separate markets for petrol-based products. For investors and traders, it’s essential to stay informed of news reports about the war. That one event is likely to have the largest single effect on international pricing in the near future.
International Impact of OPEC Actions
No one wants global energy segments disrupted by the war, including OPEC+ nations, G7, Australia, or others. But that outcome is almost inevitable. Additionally, those responsible for imposing the capped price of $60 on Russia’s output would like to see the free market continue to operate for all other nations. For its part, OPEC has already taken the decision to cut production between late 2022 and the end of 2023. So, what will be the impact of that move? The goal of the reduction is to sustain international demand, freeze Russia out of the global petrol markets while they conduct an ongoing war of aggression, and lend stability to the oil commodity segment. However, there are no guarantees that Moscow won’t find multiple ways to evade the cap and other punitive measures against it.
