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Dan Yergin predicts oil prices could hit $121 a barrel when China fully reopens, but warns there are three major uncertainties dominating the market.
“Our base scenario for 2023 is $90 for Brent but you have to look at other cases,” said S&P Global vice president, adding that there are three factors of uncertainty. Key: Federal Reserve decision, Chinese demand, and Moscow’s reaction to the price ceiling.
Yergin told CNBC’s “Street Signs Asia” on Tuesday: “If China overcomes Covid… then you will create a lot of demand in the market.
That could be “a big hit” and push prices up to $121 a barrel, Yergin said, based on stresses from lack of investment in oil and gas. That would be near the highs set in March after Russia invaded Ukraine.
On the other hand, Yergin said prices could fall to around $70 a barrel during a recession.
In the past three weeks, local and central governments in China easing some of the strict measures of Covid that has required people to stay at home and businesses that are largely operating remotely.
Oil demand from the world’s top importer could reach 15.7 million bpd in 2023, about 700,000 bpd higher than in 2022. S&P said in its most recent forecast.
Other considerations include Russian President Vladimir Putin’s reaction to price ceilings imposed by the European Union, as well as further rate hikes by the Fed.
EU energy ministers on Monday agreed to limit natural gas prices to 180 euros per megawatt hour, but the European Commission warned that the measure could suspended if “risks outweigh benefits.” This decision was made after oil prices hit the ceiling at $60 per barrel in early December.
Yergin said he thinks the recently-imposed gas price cap “could probably work. It also serves as a prediction of higher gas prices in the coming winters due to gas shortages,” Yergin said. Russian gas and competitive demand between Europe and Asia for LNG.