The Energy Market: What are the perspectives for 2023?

What can we expect from the energy market, globally and nationally, in 2023?

January 19, 2023

hEDGEpoint Global Markets

It’s impossible to look at the future of the energy market without thinking about transition energy. A few years ago, the main concern was to generate the energy needed by the world, while today the challenge is to do the same, with the least possible environmental impact.

Will it be possible to handle all the world’s energy demands with only renewable sources? The search for a low-carbon economy is a global trend, even if it is a path full of hard challenges.

Companies that don’t comply with ESG guidelines will be confronted by their investors and consumers.

At Cop26, the largest climate conference on the planet, Brazil committed to reducing greenhouse gas emissions by 50% by the year 2030. Although this is an ambitious goal, it’s still not enough to reach the goal of only allowing the planet’s temperature to rise by just 1.5°C.

In terms of electricity generation, Brazil stands out both in relation to its emerging peers, and to developed countries. This is because our electricity generation comes mainly from sources that are less harmful to the environment than coal and natural gas—widely used both in European countries and North America.

Around Brazil, almost 85% of the country’s electricity is generated from renewable sources, coming mainly from hydroelectric plants, wind and solar parks, biogas, and biomass.

The biggest energy-related challenges found in Brazil are linked to vehicle fuels. Even with a lot of clean energy produced here, Brazil is an extremely big country that demands abundant fuel to transport mainly cargo, whether by air, road, or sea.

In addition, there are influences from international politics and economics on the price of oil, oil products, and gas. 2022 was an atypical year in the energy sector, and events should also have an impact on 2023.

Energy Market Overview in 2022

Volatile is the precise word that defines the oil and gas market in 2022. Oil was traded at $140 a barrel after the Russian invasion. In more recent months, the price has dropped to 75 dollars, anticipating the fear of a recession to come.

The Ukraine-Russia War played a fundamental role in the events that marked the year, because with the reduction in supply, there was a concurrent increase in the prices of oil, gas, and fuel.

For companies that offered a domestic supply, mainly Petrobras and other smaller ones, the gains were positive. Dividends have never been higher, exciting the industry. On the other hand, it’s also given rise to domestic inflation, as fuel prices at the pump have risen significantly.

In September of 2022, Chinese demand for oil dropped substantially. In fact, that was the first drop in the country’s consumption in over 20 years!

However, with COVID restriction measures being eased, the flow of trade to and from China is gradually returning to normal. This is something extremely positive for the commodity markets, as the Chinese are the biggest consumers of these assets.

What are the perspectives for 2023?

With the reopening of China, its economy should return to normal in the second quarter of 2023, and with optimism regarding this demand—that will certainly increase, the price of oil is already on the rise at the beginning of the year. This can clearly add demand for oil, derivatives, and natural gas.

Another expectation (and fear at the same time) is that there could be a global recession. The rise in interest rates by central banks Around the world has made traders and market participants expect a retraction in the consumption of oil and derivatives.

Among the so-called “clean” energies, solar energy has been growing strongly, and has already surpassed wind power in the first few days of the year. This sector shows a bullish trend for 2023, mainly in terms of domestic electricity generation.

The war between Russia and Ukraine could still present unexpected developments and impact the energy market. Thus, it’s also an important agenda to follow in 2023.

How can you protect yourself from energy market volatility?

There are different types of risks in the energy market. With a new government just beginning in Brazil, along with ongoing political and economic changes, ongoing wars, a climate crisis that requires strategic changes in the private sector, and the increase in ESG guidelines, there are many variables that influence the formation of energy and oil prices.

In such a volatile market, it’s essential to have a solid plan that provides security and more predictability for the future of your investments in the energy market.

The best option to manage your risks and avoid losses is to partner with a hedging specialist who has extensive knowledge of the energy market—as is the case with hEDGEpoint.

We combine the knowledge of experts in different markets with customized risk management solutions through technology, differentiated dashboards, innovative models, and customized consulting to always offer the best experience in futures operations.

Get in touch with an expert today to find out more about how to use this instrument to favor your business.

Talk to a hEDGEpoint specialist.

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