Energy prices to remain high

Despite the onset of a global recession, we think that energy prices will remain historically high in 2023 owing to severe supply constraints. The next round of EU sanctions on Russia’s oil and product exports, coupled with the output quota cut by OPEC+, will act as a floor under oil prices. At the same time, Europe will find it more difficult to fill its natural gas storage next year given negligible inflows of Russian gas. Alternative fuel sources will fill the gap, but they will come at a cost. 

By contrast, we expect the global economic downturn to take its toll on demand for, and the prices of, most other commodities. In particular, demand for industrial metals will be subdued given sluggish economic activity in China and the likelihood that property sectors across the world will struggle in a higher interest rate environment. There should be some relief in 2024, as central banks start to loosen monetary policy, led by the Federal Reserve in late 2023, but this assumes global inflationary pressures have been brought under control.