Oil and Gas Prices to Experience Volatility in Early 2023

Strategic Insights -

U.S. crude oil and natural gas prices are expected to be volatile in the early part of this year, with prices likely moving lower before rebounding to sharply higher levels by the second half of the year, according to Smith Barney's technical analyst Richard Lorusso. Lorusso predicts that New York Mercantile Exchange (Nymex) natural gas futures, currently trading at $1.60/MMBtu, may fall to $1.24 to $1.29 and then rally into the spring, possibly reaching $2.04/MMBtu. Nymex crude is also expected to be vulnerable in February, potentially falling from its current level of $17.60/bbl before rallying to as high as $24 by year's end.

Key Takeaways:

  • U.S. crude oil and natural gas prices are expected to be volatile in the early part of this year, with prices likely moving lower before rebounding to sharply higher levels by the second half of the year.
  • Nymex natural gas futures are predicted to fall to $1.24 to $1.29 in the short term, but may rally into the spring, potentially reaching $2.04/MMBtu.
  • Nymex crude is vulnerable in February, potentially falling from its current level of $17.60/bbl before rallying to as high as $24 by year's end.
  • The near-month natural gas contract has historically bottomed around the third week of February, which may be a key period for natural gas prices.
  • Seasonal factors are expected to support natural gas prices this spring.
  • Crude oil demand in the United States and Europe is expected to be low in the early part of this year, potentially hurting prices.
  • John Saucer, Smith Barney's energy analyst, predicts that crude should trade in the lower end of a $17-$19 range early this year.
  • Saucer also expects crude to challenge the 1994 highs in the $20-$21 range by midyear.

Statistics:

  • Nymex natural gas futures: $1.60/MMBtu (current), potentially falling to $1.24 to $1.29, and then rallying to $2.04/MMBtu.
  • Nymex crude: $17.60/bbl (current), potentially falling in February before rallying to as high as $24 by year's end.
  • Natural gas contract: $2.66/MMBtu (peak in 1994), falling to $1.395 in 1994.
  • Crude oil: $13.88/bbl (1994 low), rallying to $20.98 in 1994.

Sources:

  • Smith Barney, Harris Upham & Co.
  • Richard Lorusso, first vice president of Smith Barney
  • John Saucer, energy analyst at Smith Barney
  • "Smith Barney Research Briefing" (Wednesday)
  • "1995 Outlook Report" (John Saucer)
  • "New York Mercantile Exchange" (Nymex)