Analysts are forecasting a stable oil pricing regime in the near term, a development they say will bode well for the domestic economy on the back of uncertainty in the global oil landscape.
The outlook for crude oil in 2023 has been described as uncertain as Russian oil production continues to exceed expectations and supplies from Venezuela and Iran increasing due to the partial easing of sanctions, coupled with surplus supply from key markets against depressed demand over the increased risk of recession in other critical markets.
Commenting on the subject, an Associate Professor in Finance at the University of Ghana Business School (UGBS), Elikplimi Agbloyor, said: “I believe that the trend we are seeing – with the price drops – will continue. Much was made about the Russian situation and some projections were putting oil at never-before-seen rates, but that has not happened and I do not foresee any sharp movements soon”.
Market developments
Crude oil prices rose sharply in 2022, with the benchmark Brent Crude oil reaching the US$130 per barrel (/bbl) mark in the first half of 2022 before easing to close the year at US$85.99/bbl (+10.22 y/y). This was largely attributed to supply shocks from the Russia-Ukraine conflict and the low global crude oil inventories at the time.
The drop was also due to increased concerns about a global recession following a sharp slowdown in the Eurozone and a prolonged lockdown in China due to rising COVID-19 cases that weakened the demand for oil.
Furthermore, the release of strategic petroleum reserves (SPRs) from the US and other major economies eased the supply tightening and, together with weak demand, triggered a price correction in the second half of 2022. This correction, as well as the US$60 cap on Russian oil, eventually led to a stabilisation in crude oil prices, which reached their lowest point last December.
However, in its Quarterly Market Insight report, analysts at the research arm of GCB Bank – GLC Research – said the “outlook for the oil market for 2023 remains clouded in uncertainty. This uncertainty complicates the outlook for crude oil in 2023”, citing factors – such as the afore-mentioned supply risks from sanctions, embargoes and price caps, which remain in force. This, it believes, “further complicates the outlook for crude oil this year”.
An energy analyst, who craved anonymity, commenting on the report, said: “The oil market is facing a multitude of challenges in 2023. While supply risks and demand-side factors are contributing to the uncertainty, the implementation of sanctions on Iran is a key wildcard that could have a significant impact on the market”.
Local scene
The various moving parts, according to the analyst, would only serve to compound the difficult policy landscape.
Already, so much controversy has shrouded the much-talked gold for oil policy, which its adherents have touted as the reason for the pump price reduction during the last pricing window as some oil marketing companies have started selling a litre of petrol and diesel at GH¢12.95 and GH¢13.49, respectively, on average.
Many industry watchers have, however, cited the more stable cedi and the marginal drop in global crude oil prices for falling domestic pump prices. Since the end of February, the global benchmark for crude oil, Brent, experienced a slight decline in price, dropping from approximately US$84.14 to roughly US$83.87 per barrel. The average prices during this period only showed a marginal decrease.
Within this time frame, the commodity’s price fluctuated, starting at around US$86 per barrel in the middle of the window but dropping to as low as US$74 per barrel on Wednesday, March 22, 2023.
Despite the challenges, some analysts believe that the stabilisation of crude oil prices in 2022 remains a positive sign for the market.
“The fact that crude oil prices have stabilised is a positive development, as it provides some level of certainty for market participants. However, the market remains fragile and any major disruptions could trigger significant price movements,” the unnamed analyst added.
Possible impact on government revenue
The moderation of global oil prices could have an impact on government revenue at a time when it seeks increased fiscal consolidation.
During the presentation of the 2023 Budget, Finance Minister Ken Ofori-Atta indicated that the state was projecting crude oil prices to average US$92 during the year.
“The outlook is for crude oil prices to decline to US$92.00/barrel in 2023 and further to US$80.00/barrel in 2024,” he said.
From January to September 2022 – when oil was above US$100/bbl, the Petroleum Holding Fund received US$1.17billion (GH¢11.17 billion) from petroleum liftings and other receipts. This is an increase from the US$618.46million (GH¢3.63 billion) received during the same period in 2021 when oil averaged US$70.4/bbl.
It is, however, expected that as a net importer of crude oil, the reduction in ex-pump prices of products and the impact on transportation, and consequently inflation, would be positive.
