The oil price shock will reverberate into 2023

WALL Street may be abuzz with talk of recession next year, but it’s a different story in the energy market. Most traders, policymakers and analysts see oil demand growing through 2023 and supply struggling to keep pace.

In private, Western officials worry Brent crude will reach US$150 a barrel soon from about US$120 now. Some fear it keeps going higher, with wild chatter about oil hitting US$175 or even US$180 by the end of 2022, driven by post-Covid pent-up demand and European sanctions against Russia. And the shock won’t end this year.

The International Energy Agency will publish its first look at the 2023 supply and demand oil balance on Wednesday – marking the start of the annual pivot when investors increasingly focus their attention on the following year. Already, money has been flowing into the December 2023 Brent contract, lifting its price close to US$100 — a clear sign traders see the tight market lasting. The higher-for-longer oil price outlook will add to global inflationary pressures and erode the margins of manufacturing companies.