Oil to average US$92 in 2023 as 'strong cycle' kicks in: RBC
Oil prices are set to average in the mid-US$90 per barrel range next year, before ticking up again in 2024, according to RBC Capital Markets.
The forecast comes as prices rise from recent lows, amidst an uncertain timeline for restarting TC Energy's (TRP.TO)(TRP) 622,000 barrel-per-day Keystone pipeline, and scant details on how the G7 price cap will influence Russian exports.
Last week, continued fears of a weakening global economy cutting fuel demand helped push the price of North American West Texas Intermediate (CL=F) and European Brent crude (BZ=F) to their lowest levels since December 2021.
A team of RBC analysts led by Michael Tran say they expect WTI and Brent to average US$92 and US$95.50 per barrel for the full year in 2023, respectively, followed by US$98.50 and US$101.50 per barrel in 2024.
"Following price action from last week, such forecasts may appear lofty, which is why we centre this piece away from the near-term noise, and focus on the medium term, structural pieces that remain in place," Tran wrote. "In short, we believe that the forward curve remains undervalued."
The forward curve refers to a chart of consecutive monthly prices for future delivery of oil. Tran predicts the start of a strong cycle driven in part by a historic lack of investment in the global energy industry, and the time it will take to bring on new production.
"An economic signal is required to give exploration and production companies the conviction to greenlight projects. Even once the forward strip re-rates higher and the economics prove attractive, the time lag between making an investment decision and initial production is typically measured in years," he wrote. "This is why we believe in the strong cycle."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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