The following is an excerpt from Americas: Oil Market Outlook 2023.
1 U.S. gasoline prices will again command the consumer stage but for different reasons than in 2022. A majority of U.S. retail numbers will commence 2023 below $3/gal and beyond a seasonal higher priced interval and those numbers may disappear by spring only to return later in the year. Diversity in state-by-state numbers will continue with perhaps $1.50/gal separating the lowest and highest priced states.
2 The 2022 OPIS/AAA average price for gasoline was within a fraction of $3.97/gal. A reasonable projection for 2023 calls for $3.39/gal to $3.49/gal. Relatively higher prices in western states and the Northeast will offset many of the sub-$3/gal prices in the Southeast, Midwest and along the Gulf Coast and in the Southwest. The gasoline “cut” for U.S. refiners will continue to be subordinate to diesel and jet fuel returns for most of the coming year.
3 Whereas 2022 U.S. average gas prices varied from about $3.099/gal to just over $5.015/gal, the fluctuations in 2023 will be much tighter. California will march to the tune of its own drum, with prices racing to $5-$6/gal levels during episodes of refinery downtime or other intervals of tight supply. Most lower 48 states will see availability of sub-$3/gal gasoline in various portions of 2023.
4 U.S. gasoline consumption in 2022 looks to be about 8.7 million to 8.8 million b/d when final numbers are rendered, or about 600,000 b/d below the ~9.3 million b/d figures that were the norm from 2016-2019. Cheaper prices are not likely to alter new commuting habits, and better mileage standards will keep consumption flat to 2022. So, OPIS expects annual demand of about 8.8 million b/d or about 365 million gallons per diem to continue. That projection takes into consideration a shallow recession or some lower employment numbers in the U.S. in the second half of the year.
5 Thanks to the 2022 legacy, some dramatic price comparisons are likely. We suspect that between the middle of the first quarter of 2023 and the end of the second quarter, U.S. gasoline prices may be $1.50/gal or 30% below same week 2022 figures. This may present some of the most spectacular deflation across the commodity space.
6 Diesel price strength will abate but diesel will continue to be considerably more expensive than gasoline, thanks to fuel switching (diesel for some purposes instead of natural gas in Europe and SE Asia) and low inventories. However, the anniversary of the Ukraine Invasion and paroxysms in 2022 diesel prices should bring deflation for this product as well. U.S. diesel prices peaked at $5.8159/gal in mid-June 2022 and much of 2023 should see diesel about $1.50/gal lower.
7 The 2022 average price for WTI came in around $94.50/bbl. We suspect that 2023 will see a price only slightly below this number with $90/bbl a reasonable prophecy for a 2023 annual average, with Brent commanding $95-$96/bbl. Precisely how high these numbers move above the average will depend on the successful reopening of China and the ability of western countries to avoid a significant recession. The lowest numbers for crude are most likely to be recorded in January and February.
8 Talk of global refining shortages will ease and perhaps abate by the second half of 2023. Huge new refining complexes in Africa, Southeast Asia, and the Middle East will restore comfort in the ability to create enough gasoline, diesel and jet fuel in international markets. With the notable exception of the lame duck Lyondell refinery in Houston (scheduled to close in late 2023) all U.S refineries should survive and even prosper. Refiners should see consistent domestic demand, some further growth in export activity, and a substantial advantage versus much of the world that comes thanks to much cheaper natural gas, electric, and hydrogen costs.
9 A real test for diesel and jet fuel arrives early in 2023 via the EU ban on Russian imports of diesel, jet fuel and gasoline. It will not be easy for European countries to be weaned from Russian dependency, particularly if Mother Nature brings cold temperatures in the Northern Hemisphere. U.S. futures’ markets might have a very dynamic first quarter since the Phillips 66 Bayway refinery -- perhaps the most critical plant for CME futures’ delivery -- goes down for 60 days in February and March.
10 Retail gasoline will continue to be a hot sector in 2023 although margins may slip from the off-the-charts’ levels of 2022. At least three major oil companies – BP, Shell and Motiva (owned by Aramco) -- will pursue joint ventures or outright purchases of North American chain retailers. Brisk M&A activity will persist, although transaction multiples may dip with rack-to-retail margins.
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