Oil barrels

The outlook for global oil prices is highly uncertain amid a variety of factors that could drive prices higher, and a number that are weighing on the downside, according to a new report from TD Economics.

On the upside, prices could be pushed higher by supply constraints, declining global inventories and rising geopolitical risks, the report said.

According to the report, prices initially rose by about $5 per barrel as a direct result of the surprise attack by Hamas on Israel.

“The effect on oil prices appears relatively contained for now, as these regions are not major producers of oil,” it said.

“However, the risk of wider instability in the Middle East remains the biggest risk, notably with respect to the regionally intertwined powers of Iran and Saudi Arabia,” the report noted.

At the same time, declining demand amid slowing economic growth, tight monetary policy, a strong U.S. dollar and money managers’ speculative positioning on commodities portend weaker prices in the year ahead, TD said.

“The Western world also looks set to consume more crude oil in 2023 than it did last year. However, the prospects for a sharp pullback in oil demand growth remains high,” the report said. “Should lackluster oil demand growth collide with non-OPEC and U.S. supply growth and OPEC+ unwinding voluntary cuts, oil prices will be dragged down in the process.”

At this point, TD said it expects the growth of global oil demand to slow in the year ahead, but that the major oil-consuming countries will avoid slipping into recession, and tanking demand.

So, while prices are likely to remain volatile, “given the balance of risks, our forecasts land somewhere in the middle,” it said.

Overall, TD is projecting that prices will average US$84/bbl in the fourth quarter this year, with average price for 2024 coming in at $80/bbl.