The World Bank has released its Commodity Markets Outlook report, projecting that Brent crude oil prices will average around $84 per barrel in 2023, with expectations of further tapering in 2024 due to weakening global growth. The report also suggests that these prices are likely to stabilize by 2025 as both supply and demand recover.
In the third quarter of 2023, the World Bank’s Energy Price Index recorded a 9% increase, primarily driven by an 11% surge in oil prices, which constituted a significant portion of nearly 80% of the index. This rise followed OPEC+ supply cuts, leading to an effective withdrawal of an additional 1% of total supply starting in July 2023.
In the financial context, Brent crude oil prices experienced fluctuations, reaching a peak of $120 per barrel in June 2022, only to recede by 23% to $95 per barrel by mid-October 2023. These price variations throughout the year were influenced by factors such as shifts in expectations for economic growth and changes in OPEC+ oil cuts.
Moreover, the oil market was affected by the failure of major banks, concerns about a global recession, and OPEC+ production cuts, which contributed to steady price increases in recent months. Notably, amid the onset of conflict in the Middle East, energy prices surged by 9%.
The current Middle East conflict has significantly heightened geopolitical risks and is considered a crucial driver of global oil prices. If this conflict were to escalate into a larger regional crisis, it could substantially affect oil markets, leading to a higher chance of decreased oil supply from the Middle East.
However, if the Middle East conflict does not escalate, the World Bank report projects an average Brent crude oil price of around $84 per barrel in 2023, representing a decrease from nearly $100 per barrel in 2022. To achieve this annual average, the price is expected to reach nearly $90 per barrel in the final quarter of 2023.
Forecasts also anticipate an increase in OPEC oil supply, provided Saudi Arabia’s voluntary cuts are paused by January 2024. Meanwhile, the growth of non-OPEC+ production is expected to slow, transitioning from about 2 million barrels per day (mb/d) this year to 1.4 mb/d in 2024. This transition will involve production increments in countries like Brazil, Canada, Guyana, and the United States.
In the coming years, a slight decrease in oil prices is predicted for 2024, followed by a further reduction in 2025. However, these prices are anticipated to remain roughly 16% higher than the previous 5-year average of $70 per barrel.
According to the World Bank projections, the Nigerian oil market could benefit from a further increase in Brent crude prices by the final quarter of 2023 (nearly $90 per barrel). This is contingent on the country actively increasing oil production as pledged.
However, the ongoing issue of crude oil theft continues to hamper oil production. In September 2023, the country produced 1.5 million barrels per day, with condensate production accounting for a significant portion of that figure.
