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The World Bank has predicted that energy prices will decline by 11% in 2023 after having surged 60% in the current year following Russia's invasion of Ukraine. In its latest Commodity Markets Outlook, the World Bank projected that Brent crude will average $92 a barrel in 2023 before easing to $80 in 2024--still well above the five-year average of $60.
According to the bank, both natural gas and coal prices will decline in 2023 from record highs in 2022, but U.S. natural-gas prices and Australian coal are still expected to be double their average over the last five years by 2024. Meanwhile, European natural gas prices could be nearly four times higher.
The WB further predicted that Russia's oil exports could drop by as much as 2 million barrels per day due to the EU’s sanctions on Russian oil products, coupled with restrictions on insurance and shipping, due to take effect on Dec. 5.
Those projections appear to be in-line with a recent Moody's research report.
According to the report, industry earnings will stabilize overall in 2023, but remain below levels reached by recent peaks. The analysts note that commodity prices have declined from very high levels earlier in 2022, but have predicted that prices are likely to remain cyclically strong through 2023. This, combined with modest growth in volumes, will support strong cash flow generation for oil and gas producers.
Moody’s estimates that the U.S. energy sector’s EBITDA for 2022 will clock in at $623B but fall to $585B in 2023. The analysts say that low capex, rising uncertainty about the expansion of future supplies and high geopolitical risk premium will, however, continue to support cyclically high oil prices. Meanwhile, strong export demand for U.S. LNG will continue supporting high natural gas prices.
One particular standout from that report is how bullish the analysts are about the Oil Field Services (OFS) sector.
“Rising demand for oilfield services (OFS) amid some growth in drilling and completion activity will continue to boost pricing power and will support material growth in earnings for OFS companies,” the analysts wrote.
By Alex Kimani for Oilprice.com
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Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.