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Oil in 2023 to average US$80; rising dividends, buybacks to stay: report

Oil and gas companies seen opting for modest investments in owned assets amid caution

Deloitte says China’s reopening will be the defining factor for oil prices in the first quarter of 2023. (GETTY)
Deloitte says China's reopening will be the defining factor for oil prices in the first quarter of 2023. (GETTY)

North American benchmark oil prices are set to average US$80 per barrel in 2023 before tapering into the US$70 range through 2030, according to the latest energy price forecast from Deloitte.

Fears of a looming recession and an unclear timeline for China's COVID-19 reopening have weighed on oil prices in recent weeks. This follows a highly volatile year in 2022, where Russia's war in Ukraine, and related commodity sanctions, added to an uncertain supply-demand balance.

The price of West Texas Intermediate (WTI) oil breached US$75 per barrel on Tuesday, buoyed by optimism about China, the world's largest crude importer, lifting border restrictions as it abandons its strict zero-COVID approach. In June, prices spiked above US$120 per barrel as fighting in Ukraine intensified and European nations scrambled to secure fuel for winter.

Andrew Botterill, national leader of oil and gas for Deloitte Canada, says China's reopening will be the defining factor in what is expected to be a volatile first quarter of 2023. On the whole, he sees this year mirroring the back half of 2022, with oil prices remaining elevated amid geopolitical risks and ongoing recession jitters.

"We expect things to be relatively robust through 2023, probably on the higher side for the first half of the year," Botterill told Yahoo Finance Canada. "I think 2023 is going to look a lot like the end of 2022 within that US$80 WTI range."

Adjusted for inflation, Deloitte's report, released on Monday, calls for the price of North American oil benchmark to decline into the US$70 per barrel range through 2030.

"There is a belief that things will soften as we go into the future," Botterill said. "These prices [today] will drive investment, and that backwardation is generally an indication of that."

However, he expects oil and gas companies to remain cautious with their spending, opting for modest investments in owned assets, rather than large greenfield expansion, or other more aggressive efforts to boost production.

For investors, 2022 was a banner year for oil and gas. Capital discipline and rewards for shareholders were the name of the game, with many producers raising dividends and buying back stock.

Budget increases were muted despite record revenue from higher commodity prices. Botterill expects this trend to carry into this year, as companies struggle to gauge future demand, the pace of transition to cleaner forms of energy, and the implications of government climate policies.

"If they continue to have cash-on-hand, they're going to be managing debt, and they're going to be getting cash into shareholders' hands," he said.

"There will be some increases in budgets, but it's not going to be dramatic."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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