In the third quarter of 2023 (1 July – 26 September), the average ICE Brent price increased by $7.5 per barrel QoQ to $85.5 per barrel due to tighter market supply, after OPEC and its allies (Opec+) collaborated to elevate prices.
Opec+ extended timeline of reducing crude oil production by 3.66 million barrels per day, from the end of 2023 to the end of 2024. Furthermore, Opec+ reduced baseline of crude production quotas by 1.4 million barrels per day to 40.46 million barrels per day in 2024. In addition, Saudi Arabia also announced an extension of voluntary crude oil production cut by 1 million barrels per day until the end of 2023. Besides, Russia also extended the timeframe for reducing crude oil exports by 300,000 barrels per day until the end of 2023, with the aim of keeping oil prices above $80 per barrel.
The climate has an impact on oil market, with the El Niño phenomenon leading to unusually warm weather in Europe. The Copernicus Climate Change Service (C3S) reported that 2023 will become the warmest year on record for Europe. This has posed challenges for European refineries amid the heat wave in July 2023 persisted, pushing temperatures above 40°C. The refineries are designed to operate within an average summer temperature of 25-30°C. Hence, extremely hot weather during summer lead to a reduction in refinery utilization rates for safety reasons. Additionally, Energy Aspects reported the global refineries maintenance in September 2023 increased by 17% month-on-month (MoM) to 6.39 million barrels per day, highest level in three months.
Meanwhile, the global economy is expected to make a gradual recovery. The International Monetary Fund (IMF) has raised its forecast for the global Gross Domestic Product (GDP) in 2023 from +2.8% year-on-year (YoY) to +3.0% YoY. While the growth rate is expected to remain stable at +3.0% YoY in 2024. Nevertheless, the world economy and oil demand may face pressure due to the high interest rate of major central banks around the world. The U.S. Federal Reserve (Fed) Chairman, Jerome Powell, has indicated the possibility of an increase in the interest rate from the current range to 5.50% - 5.75% in 2023 to curbing the U.S. inflation to a target rate of +2.0% YoY (the U.S. Consumer Price Index (CPI) indicated inflation in August 2023 was +3.7% YoY, the highest level in three months).
In contrast, Chinese economy is experiencing a slower recovery due to financial disruptions in the property sector. However, Chinese authorities have continued to implement measures in order to stimulate the economy. The People’s Bank of China (PBOC) and the National Administration of Financial Regulation (NAFR) reduced the down payment proportion for new homes from 30% to 20% and for second-handed homes from 40% to 30% of the properties’ value, included extending the period for reducing personal income tax for home renovations through the end of 2025. On September 15, 2023, the PBOC also reduced the minimum Reserve Requirements Ratio (RRR) for commercial banks by an additional 0.25% (excluding banks with RRR levels below 5%), leading the RRR to an average of 7.4% with could inject approximately 500 billion yuan ($68.7 billion) into the Chinese economic system.
Overall, the International Energy Agency (IEA) predicts that global oil demand in 2023 will increase by 2.2 million barrels per day YoY to 101.8 million barrels per day. In 2024, the demand will increase by 1.0 million barrels per day YoY to 102.8 million barrels per day.
The international market analysis team, the International Trade Business Unit (TBU), PTT Public Company Limited forecasts that the ICE Brent price in the fourth quarter of 2023 is likely to range between $85 - $95 per barrel, as Opec+ extended timeline for reducing crude oil production through 2024. Additionally, the hurricane season in the Atlantic Ocean (June - November 2023) may affect petroleum production in the Gulf of Mexico (GOM) and refinery operations in the U.S. The GOM currently produces approximately 1.8 million barrels of crude oil per day, or around 15% of the U.S. total production. Moreover, global oil reserves remain low. IEA reported the oil inventories of the Organisation for Economic Co-operation and Development (OECD) in August 2023 were 2,808 million barrels, 6% below the five-year average.
Moreover, the recent conflict between Israel and Palestine in the Middle East may support crude oil price, as a war-risk premium returned to markets. However, the U.S., Iran, and Venezuela tend to increase their crude production to improve revenues that could potentially prevent oil prices above the $95 per barrel threshold for an extended period.