Oil prices have slid in recent weeks, but recent future declines will be limited

Our Brent crude annual average oil price forecast ticks down to US$ 97 for 2022, and to US$ 92 for 2023

Despite weakening global growth, MNCs should continue to assume a historically high oil price environment through 2023 as a base case. Firms should likewise expect refined petroleum products like diesel, gasoline, and jet fuel to continue selling at a premium. Relatively high prices will continue to be a boon for oil producers and exporters, supporting growth and tax revenues in those markets through next year. Firms should also become accustomed to an environment of continued high oil price volatility and organize buying and financing arrangements that mitigate price swings.


Oil prices have fallen in the last several weeks due to weak global economic data and fears that an impending global recession will reduce demand for oil. That trend has outweighed other factors that would otherwise drive oil prices higher. China’s loosening Covid curbs, which will raise oil consumption in the world’s second-largest consumer, data showing OPEC members are failing to reach production quotas, and supply risks stemming from the EU oil embargo and oil price cap have so far had a limited impact on oil prices.

Our View

Our annual average Brent crude oil price forecast is now US$ 97 for 2022 and US$ 92 for 2023. This forecast is on the higher side of consensus. In contrast to previous forecasts throughout 2022, price risks are balanced—with roughly equal likelihood that prices could average above or below this forecast. Since the last forecast update, some war-related supply risks have moderated, as the West’s price cap on Russian oil and EU oil embargo are having uncertain effects on oil markets, at least in the short term. That reduction in upside price risk is partially offset by the likelihood that oil consumption will rise considerably in the near term owing to the rapid end to zero-COVID restrictions in China.

Several factors drive our forecast:

  • OPEC and US supply: We expect OPEC will continue acting as an effective price floor, given a high likelihood that the bloc will opt to cut production should oil prices fall substantially below US$ 80. In the event of further supply disruption, OPEC continues to have limited spare capacity to expand production. Although US production will continue drifting higher in 2023, higher interest rates will weigh on production growth.
  • Russia’s oil production: Russian oil production will continue to face downward pressure, as sanctions disrupt Russian energy sector operations, financing, and exports. We expect Russian crude oil production to fall from 11.3 million bpd in Q1 2022 to 9.3 million bpd in Q4 2023.
  • Oil sanctions: Since the West’s oil price cap and EU oil embargo came into force on December 5, the net effect has been a decline in oil prices. Evidence is emerging of localized oil gluts as Russia struggles to redirect oil flows to other markets. This suggests the latest sanctions are achieving their aim, though perhaps not enough to provoke immediate retaliation by Russia. Although war-related supply risks continue to weigh on oil markets, price risks are more balanced than they were earlier this year.
  • China’s lockdowns: China’s stunning about-face on COVID management and rapid lifting of virtually all restrictions will raise oil consumption on net in 2023, compared to our previous assumption that China’s zero-COVID strategy would persist for much of the year. In Q1, expect high oil price volatility as a succession of COVID waves drives consumption volatility; by Q2, China’s oil consumption will likely rise by a full 1 million bpd compared to 2022 average levels.
  • Europe’s energy crisis: Shortages of natural gas in Europe will continue driving switches to other fuel sources, particularly diesel and coal. Europe’s energy crisis will also contribute to upward pressure on natural gas prices in other regions, particularly in China and developed Asia. Fuel switching to petroleum sources will exert upward pressure on oil prices.
  • Global recession: Expectations of a global recession have pushed oil prices downward in recent weeks, as traders factor in the possibility of reduced oil consumption in a recession. Previous recessions—even severe ones like the 2008–2009 Global Financial Crisis—have tended to only reduce global oil consumption by 0.5–1%, which today would account for roughly 500,000 barrels per day. We therefore expect any demand reduction from a recession to be more than offset by increased consumption in China and a continued recovery in global air travel.

Overall, these factors point to continued high oil prices next year averaging in the low-90s, with price risks roughly balanced.

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