Analysis by Sydney Casey
Another commodity supercycle could be in the cards for 2023. As FUELSNews covered in Feb 2021, citing a JP Morgan analysis, markets were due for a rapid rise. Over the past century, markets have moved in large cycles, which tend to last roughly 20 years and bring large trends in price direction. The last down cycle seems to have ended in 2020, during the pandemic. Although the past year has brought severe challenges and historic prices, we could be in for a much bumpier road in the future – even seeing new record highs that blow away previous records. So what is a supercycle, and what does this mean for 2023 and beyond?
In the last century, we have only seen four “supercycles”, or periods of persistent directional price trends. From 1997 to 2008, prices rose almost non-stop, although some years did see lower prices. From 2009 to 2020, prices slowly returned lower, though with plenty of volatility on the way. It is important to note that a supercycle is a sequence of spikes in prices, not a continuous upward trend, making them very difficult to predict. Economists also disagree on whether supercycles are truly predictable events or merely artificial narratives imposed on the data.
Goldman Sachs predicts that the first quarter of 2023 could be “bumpy” as the US dollar continues to weaken, and China remains in economic tension from its COVID shutdowns. They also suggest that supply shortages will cause high prices to endure until pressures loosen. Supply has been stagnant for the past year from China’s situation, the Russian-Ukraine war, and other geopolitical concerns.
Although there will be short-term volatility driving price higher and lower, the long-term trend will be upward due to underinvestment in crude production. Even historic highs, have failed to win over oil producers. “This is the single most important revelation of 2022 — even the extraordinarily high prices seen earlier this year cannot create sufficient capital inflows and hence supply response to solve long-term shortages,” said Goldman’s Jeff Currie. If high prices aren’t enough to solicit new production, then markets could be stuck with an on-going undersupply imbalance that is only solved through high prices and demand reduction. Goldman forecasts a 43% uptick in the S&P GSCI Total Return Index in 2023.
According to the bank, Brent crude prices could reach over $100/bbl, almost $20/bbl more than prices today. Ultimately, that will trickle down to consumers at the gas pump paying high prices similar to what we saw between April and June of 2022.
Once past the first quarter hiccups, 2023 could see a steady upcycle if China fully reopens and global economic tightness relieves. Consumers should plan accordingly with these factors in mind when preparing fuel budgets for the upcoming year.
Of course, a global recession could turn the corner for commodities away from analysts’ projections. But unlike financial markets which fluctuate on the whims of investor sentiment, commodities reflect physical supply and demand realities. As long as the forecasts reflect weaker supply and growing demand, expect to see an upward trajectory for oil prices.