Citi's global commodities chief explains his oil price forecast for 2023 as sanctions choke Russia - and breaks down the 'stunning' state of America's oil industry

• In an interview with Insider, Citi's Ed Morse said he expects Brent crude to finish 2023 around $76 a barrel.
• Next year, energy markets will see both a supply uptick and an easing of global demand, Morse said.

Global energy flows have endured huge uncertainty and volatility this year, and Ed Morse, Citi's global head of commodities and veteran forecaster, is expecting continued market weakness in 2023.

Morse forecasts that Brent crude, the international benchmark, will end 2023 at $76 a barrel, down by about 6%, while West Texas Intermediate crude will end the year below $70 a barrel, or roughly 9% lower from levels this week.

"We have an underlying view that we will see an imbalance between supply and demand across 2023, with significantly more supply coming into the market than demand, leading to inventory builds, which should weigh on prices so that we see prices ending the year on average lower than the beginning," Morse told Insider.

The coming year will bring more volatility to energy markets, he noted, because of the uncertainty around what he calls the "fragile five" producers of Iran, Iraq, Nigeria, Libya, and Venezuela, all of which are dealing with domestic tumult that could impact their supply output.

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

For example, China recently began exporting the fuel once again, and Morse said it's possible that China is shipping out a record volume of it by the time the new sanctions kick in.

European and American refiners, too, have been gradually building up supplies, as have Kuwait and Saudi Arabia.

The impact of sanctions on Russia

Even before Western nations imposed formal sanctions against Moscow, de facto bans had been crimping Russia's oil export revenue from the moment Russia invaded Ukraine, as many companies chose to seek business elsewhere.

"There's been a critical build up in anti-Russian sentiment in Europe, and a rethinking of that relationship, that Europe is overly dependent on Russian supplies," Morse said.

He added that the surge in Brent prices earlier this year to $125 a barrel was not exactly a consequence of supply and demand, but rather a function of market distortions stemming from a major buyer—Europe—shunning the readily available and nearby supplier, Russia.

Meanwhile, Morse said wartime sanctions have had a particular impact on Russia's natural gas exports, which have left as permanent a mark as possible on the nation's export revenue.

"The drop in revenue from natural gas exports being lost to Europe had no replacement whatsoever because there was no other place to sell the gas to, so revenue from gas exports plummeted," he said. "They will never be able to replace the lost supply going to Europe. Russia simply doesn't have the technology or the ability to penetrate markets, given the reputational risk."

America's growing role in fuel exports

With sanctions biting into Russia's role as a major energy exporter in recent months, the US has undergone a dramatic shift.

The commodities chief explained that, at the start of 2022, US exported about seven million barrels a day of crude products. With 2023 around the corner, that figure has hovered near 10 million barrels a day. Sometimes it even nears 11 million, Morse said.

"There was a stunning impact on American oil," he said.

Citing data released December 14 from LCM, Morse pointed out that the US has seen over a 91% surge in diesel exports year-on-year.

"The US supply system has played a really significant role in filling the gaps," Morse said. "We're exporting a hell of a lot."