WTI Oil Price Outlook for 2023: Range-Bound or Ready to Break Out?

Key Insights

• Russian oil exports should not suffer a strong blow in 2023, which is bearish for oil markets.
• Recession in developed countries remains the key risk for oil prices. 
• China’s demand will likely grow significantly after the first months of 2023 and should provide strong support to oil markets in the second half of the year. 

Oil markets have been volatile this year, which is normal for one of the world’s most unpredictable asset classes. WTI oil moved towards the $130 in early March, when traders feared that sanctions would cut Russia’s exports dramatically.

These fears did not materialize, and Russian oil kept flowing to markets. Meanwhile, traders became focused on risks of global recession, and WTI oil moved towards the recent lows at $70. What’s next?

Russian Oil Exports And Recession Risks Remain The Key Topics For 2023

Russia has recently released a decree banning the sale of oil to countries that support the price cap scheme. The decree turned out to be weaker than expected, and it looks that Russia is afraid to lose its market share.

In the near term, Russian oil exports will likely decline anyway due to logistical problems caused by sanctions. However, Russia and its customers will likely solve them over time, so the real impact on the market should not be too big unless the situation escalates further and both Russia and the West raise stakes.

The potential global recession remains the key risk for oil demand in 2023. UK and the EU are almost guaranteed to fall into recession next year. In the U.S., the Fed is trying to orchestrate a soft landing, but rising rates have already started to put significant pressure on the economy.

In China, economy should rebound as the country abandons its strict zero-COVID policy. In the near term, China will likely face problems as the number of new infections is rising very fast, which will inevitably put pressure on the economic activity.

In the longer-term, China’s demand will rebound. The balance between rising demand from China and the weakening demand in recession-hit countries will determine the price of oil in 2023.

The Direction Of The Move Out Of The Current Range Will Play A Key Role In 2023

On the weekly chart, WTI oil settled in the range between the support level at $70 and the resistance level at $83. The direction of the move out of this range will determine the near-term fate of the oil prices.

If WTI oil gets above the $83 level, it will head towards the resistance at $93. A successful test of the resistance at $93 will push WTI oil towards the next resistance at $100.

On the support side, a move below the $70 level will open the way to the test of the support at $65. In case WTI oil declines below $65, it will head toward the next support level, which is located at $58.

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