KUALA LUMPUR (Feb 3): Fitch Solutions maintained its price forecast for Brent crude at US$95 per barrel (bbl) for 2023 and US$88/bbl in 2024 following improved growth prospects, earlier-than-expected easing of China’s Covid-19 policy and slower production.
“On the demand side, prospects for growth have improved, following the earlier-than-expected easing of Covid-19 containment measures in Mainland China.
“On the supply side, uncertainties around Russia continue to cloud the outlook, but slowing production growth in the US, further delays to the Iranian nuclear deal and continued production restraint by OPEC+ will combine to significantly decrease supply growth this year,” it said in a statement on Friday (Feb 3).
The research unit said while its forecasts for crude are above-consensus expectations for the year, it expects a sharp slowdown in global real gross domestic product (GDP) growth this year, falling from an estimated 3.0% in 2022 to 1.9% in 2023.
“That said, despite ongoing headwinds in the form of monetary and fiscal policy tightening, recent data releases suggest that several large economies are holding up better than expected,” it said, adding that consensus growth expectations now appear to have bottomed out.
Fitch noted commodities in general have also enjoyed a lift in the form of a weaker US dollar, which lowers their cost in local currency terms.
“Since its peak in September 2022, the greenback has lost around 11% of its value and, while further declines are likely to be more moderate, we hold a neutral-to-bearish outlook in the near term,” it added.
Fitch said several factors support the view, including peaking interest rates in the US and increased intervention by other central banks, greater-than-expected resilience in European and Chinese growth, a slight overvaluation of the US dollar and room for bearish positions to build.
Fitch said physical oil demand is expected to slow this year, with consumption growth of 1.47 million barrels per day (b/d), down from 2.58 million b/d in 2022.
“Nevertheless, this implies a level of demand marginally above the trend rate of growth seen over the previous decade. Moreover, in light of the expected upward revisions to our economic forecasts, the balance of risk to the demand side is now skewed to the upside,” it said.
Jet fuel to rise on recovering aviation sector
Fitch said the economic reopening in China will also add further impetus to the ongoing recovery in the global aviation sector.
It had revised its jet fuel price forecast for 2023, forecasting global prices to average US$140/bbl, up from US$127/bbl previously, partly as a result of the shift in Beijing’s Covid-19 strategy.
Fitch also noted that high frequency data points to a sharp rebound in Chinese air travel during the recent lunar new year, and it expects the end of cross-border travel restrictions combined with an increase in domestic mobility to help boost jet fuel consumption.
“While we expect demand growth to slow, this should be more than offset by the drop in output growth, which we forecast to fall from 3.79 million b/d in 2022 to 1.32 million b/d in 2023,” it added.
Fitch said the bulk of output growth can be attributed to the US, in which it forecast total crude, condensate and natural gas liquids output to rise by 901,000 b/d this year.
While this represents a healthy rate of growth, at 4.8% year-on-year, it is softer than the 5.5% estimated for last year. This is consistent with a substantial slowdown in capital spending.