Energy transition and price outlook

Key takeaways:

1. Oil price forecasts should be treated with caution as they have a well proven poor track record. After all, oil markets are complex with many dynamic factors shaping their outlook.
2. Oil price forecasts for 2023 were first optimistic as many expected a strong rebound from China post Zero Covid policy. However, structural problems in the Chinese economy soon started to become more visible, largely contributing to downward revisions in price forecasts. Add to that the impact of higher interest rates in major economies. And on the supply side, non-OPEC supply is increasing with US crude production growing at a faster pace than expected.
3. It is disappointing to see that a well-established oil producer, such as Nigeria, is still highly exposed to oil prices as economic diversification remains limited. A decrease in prices typically spells trouble for such an economy, though that depends on the level of contraction and government spending plans.
4. The performance of oil and gas companies in the stock market is reflective of the developments in the oil markets. It is also affected by companies’ strategies and government policies.
5. Following the 2022 energy crisis, some oil majors changed the rhetoric that they announced only a few years ago that they were going to reduce their investments in oil and gas and move more to green energy. Similarly, policymakers have become more lenient towards oil and gas investments to ensure security of supply and avoid inflationary prices. 
6. The green energy sector is receiving significant support by major institutions and this is not expected to decelerate anytime soon. The energy transition will continue. However, because the world’s primary energy mix currently relies on more than 80% on fossil fuels, we should also expect to see investment in conventional fuels to continue as well. The world will be riding a carriage driven by several horses.  
7. A much bigger and faster penetration of renewables will be driven by significant improvement in green technologies, particularly battery storage.