Oil prices recovered some of their losses from last week, as U.S. crude futures rose 0.9% to $77.23 a barrel, while Brent contracts increased 1% to $83.81 a barrel as of 04:30 ET on Monday. The current oil market is driven by increasing geopolitical tensions and supply concerns, which could lead prices to reach $100 a barrel by the end of 2023, according to analysts at Goldman Sachs.
Recent diplomatic tensions between the U.S. and China have been a key factor in the rise of oil prices. Over the weekend, the Chinese government warned the U.S. that it would face consequences if it escalated a dispute over an alleged Chinese spy balloon. In response, the U.S. warned China against supplying arms to Russia for the conflict in Ukraine. North Korea also fired three ballistic missiles off its east coast on Monday, and the United Nations nuclear watchdog found uranium enriched to 84% in Iran, which is close to weapons grade.
In addition to geopolitical risks, there are concerns about tightening global supply, particularly as China, the largest oil importer, recovers from its COVID-19 restrictions. Russia has planned to cut its oil production by 500,000 barrels per day in March in response to the Western world’s cap on its oil and oil products. Furthermore, OPEC+—a group that includes Russia—plans to cut oil production targets by 2 million barrels per day until the end of 2023.
Goldman Sachs analysts predict that as underinvestment, shale constraints, and OPEC+ discipline limit supply, and as the market pivots back to a deficit, oil prices will rise toward $100 per barrel by the end of this year.
Last week, both U.S. and Brent crude fell around 4%, affected by the possibility of more Federal Reserve interest rate hikes that could slow economic activity in the world’s largest oil consumer, the United States. The unexpected high U.S. inventory builds and the announcement of the sale of 26 million barrels of crude from the Strategic Petroleum Reserve by the Biden administration also impacted the crude market.
Although rising geopolitical tensions and worries about tightening supply have pushed up oil prices, there are also other factors to consider. The impact of more Federal Reserve interest rate hikes, high U.S. inventory, and strategic reserve releases could continue to impact the oil market, and it is unclear whether oil prices will continue to rise toward $100 a barrel or whether other factors could emerge to affect the upward trend.