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  • Citi CEO Ed Morse said in an interview with Insider that he expects Brent oil to end 2023 at $76 per barrel.
  • Energy markets will see both an increase in supply and a weakening of global demand next year, Morse said.
  • He explained how the roles of Russia and the USA have changed in the world arena.

Global energy flows have seen enormous uncertainty and volatility this year, and Citi’s global head of commodities and veteran forecaster Ed Morse expects continued market weakness in 2023.

Morse predicts that international benchmark Brent will end 2023 at $76 a barrel, down about 6%, while West Texas Intermediate will end the year below $70 a barrel, or about 9% below this week’s level. :

“We have an underlying view that we will see an imbalance between supply and demand in 2023 as there will be significantly more supply than demand in the market, leading to increased inventories which should affect prices so that we see prices average end the year. lower than the beginning,” Morse told Insider.

The year ahead will bring more volatility to energy markets, he said, as uncertainty surrounds what he calls the “fragile five” producers in Iran, Iraq, Nigeria, Libya and Venezuela, all of which are dealing with domestic turmoil that could. affect their supply output.

In February 2023, Russia will face new sanctions on Russian refined fuels such as diesel, causing some concern, Morse said, but concerns are easing as other countries ramp up production.

For example, China recently resumed exporting fuel, and Morse said it is possible that China will supply a record amount of it before the new sanctions kick in.

European and US refiners are also gradually ramping up supplies, as are Kuwait and Saudi Arabia.

Impact of sanctions on Russia

Even before Western countries imposed formal sanctions against Moscow, de facto sanctions have been cutting into Russia’s oil export earnings since Russia invaded Ukraine, as many companies chose to look elsewhere for business.

“There has been a sharp build-up of anti-Russian sentiment in Europe and a reassessment of that relationship, that Europe is too dependent on Russian supplies,” Morse said.

He added that the rise in Brent prices to $125 a barrel earlier this year was not a function of supply and demand, but a function of market distortions stemming from a major buyer, Europe, shunning an affordable and nearby supplier, Russia.

At the same time, Morse said that the wartime sanctions had a special impact on Russian natural gas exports, which left a permanent mark on the country’s export earnings.

“There was no replacement for the drop in natural gas export revenue lost in Europe because there was nowhere else to sell the gas, so gas export revenue plummeted,” he said. “They will never be able to replace the lost supply to Europe. Russia simply doesn’t have the technology or ability to penetrate the markets given the reputational risk.”

America’s growing role in fuel exports

In recent months, as sanctions erode Russia’s role as a major energy exporter, the US has undergone a dramatic shift.

The head of raw materials explained that at the beginning of 2022, the USA exported about seven million barrels of crude products per day. As 2023 approaches, that figure has hovered around 10 million barrels per day. Sometimes it’s even closer to 11 million, Morse said.

“America has had an amazing influence on oil,” he said.

Citing data released by LCM on Dec. 14, Morse noted that the U.S. saw a more than 91% year-over-year increase in diesel exports.

“The US supply system has played a really significant role in filling the gaps,” Morse said. “We export a hell of a lot.”

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