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Energy prices are likely to be volatile in the first quarter of 2023 as geopolitical uncertainty continues, says a new forecast from Deloitte.
Global factors including the war in Ukraine and China’s reopening of COVID-19 will continue to cause tension between supply and demand, according to energy, oil and gas company price forecasts released Monday.
“We expect volatility to continue,” said report author Andrew Botterill.
After breaching the US$100 mark for the first time in nearly a decade earlier in 2022, crude oil prices slid in the back half of the year as interest rates rose, then rallied briefly as China began to move away from a zero-COVID policy.
Botterill said in the first quarter of 2023, China’s reopening will continue to be a major focus because there are many unanswered questions about how changes will affect global demand and whether it could lead to a supply and demand crisis.
Other major factors for oil prices include OPEC-plus production cuts and moves to cap Russian crude oil prices that Deloitte said could lead to global supply disruptions, while natural gas prices have been influenced by regional weather forces and storage levels, particularly in Europe.
Global demand for North American oil and natural gas is likely to increase prices and benefit Canadian energy companies, Botterill said.
He said the difference between Canadian and US oil prices will continue until 2023.
Meanwhile, for natural gas said the big question will be how much will be exported from the US and therefore how much Canadian products the US needs to meet domestic demand.
“Canadian volumes may be needed to help the US economy, meaning stronger prices,” he said.
Turn the balance sheet around
Although the fortunes of higher energy prices in the past year would normally have led companies to increase their budgets and invest in bigger projects, in 2023 companies will tend to bend their balance sheets and brace themselves for continued volatility amid conditions that geopolitical uncertainty and talk of recession. said Botterill.
That means the company can focus more on piloting and policy development this year before making multibillion-dollar investments in long-term projects, Botterill said.
“They want to make sure that … they don’t create a lot of debt,” he said.
Although there is a lot of attention on long-term sustainable energy projects, Botterill said energy companies will approach these investments with caution, not only because of the economy but also because of uncertainty about government policy.
“We have seen different countries take different stances on different policies to support decarbonisation investments. sectors,” he said.
“We’re going to see [producers] making investments that are laser-focused on piloting and understanding the technology and understanding the risks and then getting a little more understanding and policy security.”
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