The World Bank has said that the global oil price benchmark, Brent crude will average $84 per barrel in 2023. The Bank stated this in its Commodity Markets Outlook report released earlier today, October 30.
In the report, the World Bank said that Brent crude oil prices are estimated to average $84 per barrel in 2023, tapering further in 2024 due to global growth weakening.
They are predicted to stabilize in 2025 as both demand and supply recover.
According to the World Bank report, in the third quarter of 2023, its Energy Price Index saw a 9% rise, primarily driven by an 11% increase in oil prices, making up a significant portion of nearly 80% of the index.
This increase came after OPEC+ supply cuts, leading to an effective withdrawal of an additional 1% of total supply from July 2023 onwards.
In the financial context, the Brent crude oil price experienced fluctuations, reaching a peak of $120 per barrel in June 2022 but receding by 23% to $95 per barrel by mid-October 2023.
Various factors, such as shifts in expectations for economic growth and alterations in OPEC+ oil cuts, significantly influenced these price variations throughout the year.
Furthermore, oil prices were affected by the failure of major banks, fears of a global recession, and OPEC+ production cuts, which led to steady price increases over the last few months.
The Israel-Gaza Conflict Context
The World Bank report noted that amid the onset of conflict in the Middle East, energy prices surged by 9%.
However, if the conflict does not escalate, the index is projected to drop by 29% in 2023 compared to 2022 due to expected decreases in natural gas and coal prices.
Further declines of 5% in 2024 and 1% in 2025 are anticipated, but prices are expected to remain relatively high by historical standards.
The Brent price surged by 6% at the onset of the recent Middle Eastern conflict, driven by uncertainty surrounding supply implications, and is expected to experience continued volatility.
Note that the current Middle East conflict has significantly heightened geopolitical risks and is considered a crucial driver of global oil prices.
Should this conflict widen into a larger regional crisis, it could substantially affect oil markets, leading to a higher chance of decreased oil supply from the Middle East.
However, the World Bank report noted that if the Middle East conflict does not escalate, the projected average for Brent crude oil prices in 2023 is around $84 per barrel, a decrease from nearly $100 per barrel in 2022.
To achieve this annual average, the price is expected to reach nearly $90 per barrel in the final quarter of 2023.
Forecasts anticipate an increase in OPEC oil supply, provided Saudi Arabia’s voluntary cuts are paused by January 2024.
Meanwhile, the growth of non-OPEC+ production is likely to slow, transitioning from about 2 million barrels per day (mb/d) this year to 1.4 mb/d in 2024.
This change will involve production increments in countries like Brazil, Canada, Guyana, and the United States. In the upcoming years, a slight decrease in oil prices is predicted for 2024, followed by a further reduction in 2025.
However, these prices are anticipated to remain roughly 16% higher than the previous 5-year average of $70 per barrel.
The Nigerian context
Based on the World Bank projections, the Nigerian oil market could gain from a further increase in Brent crude price by the final quarter of 2023 (nearly $90 per barrel).
However, this can only be possible if the country is able to actively increase oil production as it has pledged to do.
If oil production increases and the country can meet its 1.7 million barrels per day quota by OPEC, the country could see increased revenues by Q3/2023.
However, the issue of crude oil theft has continuously hampered oil production.
Note that in September 2023, the country produced 1.5 million barrels per day with condensate production making up a significant part of that figure.