Extractive and Oil Refining Industries in Ukraine and Worldwide: Forecasts and Challenges

The World Bank

The World Bank forecasts three possible scenarios for the oil market amidst the conflict between Israel and HAMAS. In its quarterly report, it is stated that in the event of a crisis escalation, oil prices could soar to USD 157 per barrel, as reported by Euronews. For comparison, at the time of the forecast, the benchmark European grade Brent was trading at approximately USD 88.

The bank also warned that the cost of food may rise if the conflict in the Middle East persists. So far, since the beginning of the Israel-HAMAS war, the price of a barrel of oil has increased by approximately 6%, while prices for agricultural goods, most metals, and other commodities have remained largely unchanged.

In its review of commodity markets, the organization outlined three risk scenarios for the Israel-HAMAS war, based on historical episodes of regional conflicts since the 1970s.

The least damaging outcome would involve a reduction in global oil supplies by 500,000 to 2 million barrels per day, resulting in price increase by 3% to 13% within the range of USD 93 to USD 102 per barrel.

If the situation further escalates, global oil supply will be reduced by 3-5 million barrels per day. This will initially lead to a 21-35% increase in oil prices, reaching USD 109-121 per barrel.

In the worst-case scenario, comparable to the Arab oil embargo in 1973, global oil supplies will be reduced by 6-8 million barrels per day. This will initially result in a price increase of 56-75%, reaching USD 140-157 per barrel.

The National Bank of Ukraine

Oil. Expectations suggest that the oil market will witness a trend towards price hikes, yet the situation is anticipated to remain stable. Among the primary reasons for this are:

• The policy of restraint from OPEC, which is expected to remain in effect until the end of 2024, longer than previously anticipated
• Saudi Arabia’s decision regarding oil production volumes
• Limited export volumes from Russia
• More resilient demand from the world’s largest economy, the United States.

It is forecasted that in 2024, the price of Brent crude oil will increase by 2.0% to USD 86.1 per barrel, while in 2025, the price will decrease by 13.2% to USD 74.7 per barrel.

On the other hand, the increase in production in the United States and in several countries in Latin America and Africa will contribute to easing pressure on prices. Another important influencing factor is the realization of uncontrolled oil from five countries. These include Iran, Iraq, Libya, Nigeria, and Venezuela.

Gas. The National Bank believes that natural gas prices in Europe will gradually decrease after the seasonal increase during the heating season. The cost will decline due to the increased production of liquefied natural gas in the United States and African countries.

It is also worth considering the further orientation of cheaper Russian gas supplies to China and India, which will reduce demand for it from these countries on other markets. Furthermore, this will contribute to the formation of a more balanced reserve accumulation through liquefied gas.

According to the NBU forecast, the price of gas at the TTF hub in the Netherlands will increase by 2.9% to USD 532.3 per thousand cubic meters in 2024, and in 2025, this figure will decrease by 18.9% to USD 431.8 per thousand cubic meters.

Chart 1.5. World prices of Brent crude oil (USD/barrel) and prices of natural gas at the Dutch TTF Market (USD/thousand m3)

Source: The World Bank, Refinitiv, NBU forecast.

Citigroup

Citigroup predicts that there will be a surplus in the global oil market in 2024. Experts caution that the growth in oil demand worldwide is constrained by economic challenges, energy transition, and large supplies from the United States.

Therefore, the bank expects that OPEC+ may be compelled to maintain deeper production constraints to keep prices at current levels. Citigroup anticipates price stabilization in the oil market in 2024.

JPMorgan Chase

Analyst Natasha Kaneva of JPMorgan Chase envisages that the average price of oil in 2024 will be USD 83 per barrel. Since June, the bank had anticipated that the average oil price in 2023 would be around USD 81 per barrel, which is close to the actual average of USD 82.3.

Goldman Sachs

Experts at Goldman Sachs believe that the price of Brent crude oil will fluctuate in the range of USD 70 to USD 90 per barrel. The specialists have lowered their expectations for oil prices by USD 10 per barrel.

They also point out that robust production in the United States will contribute to mitigating any potential oil price increases. Analysts expect that in the fourth quarter of 2024, crude oil extraction volumes in the United States will reach 11.4 million barrels per day.

The investment bank forecasts that in June 2024, the Brent crude oil benchmark will reach a peak of USD 85 per barrel. However, the average price projection for oil in 2024-2025 is expected to be in the range of USD 80-81 per barrel. In the previous forecast, the price was indicated at USD 92 per barrel.

However, it is worth considering that the oil market is influenced by a variety of other factors that will mitigate the risks of price declines:

• OPEC+ decisions regarding voluntary oil production cuts
• Economic recovery in China
• Moderate risk of recession.

The International Energy Agency

The growth in global oil demand will slow down almost to a halt in the coming years, while high prices and supply security issues highlighted by the global energy crisis are accelerating the transition to cleaner energy technologies.

The mid-term market report Oil 2023 forecasts that, based on current government policies and market trends, global oil demand will increase by 6% from 2022 to 2028, reaching 105.7 million barrels per day (mb/d), driven by steady demand from the petrochemical and aviation sectors. Despite this cumulative increase, annual demand growth is expected to decrease from 2.4 mb/d this year to just 0.4 mb/d in 2028, leading to a peak in demand.

Specifically, the use of oil for transportation fuel will decline after 2026 as the expansion of electric vehicle production, increased use of biofuels, and fuel efficiency improvements reduce consumption.

Energy Information Administration

The US Department of Energy forecasts an average oil price of USD 82 for 2024 and a slight decrease to USD 79 in 2025. In respect of natural gas, the price is expected to be USD 2.70 per million British thermal units in 2024, with an increase to USD 3.00 in 2025.

European Business Association

Resource exploitation should be sustainable and balanced between economic interests and environmental protection. Our strategic goals include Eurointegration and Ukraine’s inclusion in the EU’s raw materials strategy.

In addition to improving legislation in the field of resource exploitation, implementing European directives remains a priority task for parliamentarians. In doing so, issues regarding the management of waste from extractive industries, conditions for investing in the development of strategic mineral resources, and access for resource users to land plots remain to be addressed.

For the years 2023-2024, the State Service of Geology and Subsoil of Ukraine (Derzhgeonadra) has the following priorities: expanding the list of e-services, digitizing geological information, preparing new proposals for subsoil areas with deposits of strategic raw materials and other useful minerals. A separate task is the reconstruction of the country and determining damages caused by the aggression of the Russian Federation.

The future of the economy must be “greener” and more sustainable, while stable access to raw materials is necessary to support and enhance it. The European Union, together with Ukraine, are strategic partners in critical raw materials. Ukraine has all the necessary resources and expertise to become a key player in the extractive market. The EU supports Ukrainian businesses in these turbulent times by opening its trade routes for Ukrainian products. In the future, the mining sector will play an important role in EU-Ukraine cooperation and will make a significant contribution to the reconstruction and revitalization of the country and its economy.

The development of subsoil use can contribute to diversifying Ukraine’s industrial base, reducing dependence on traditional sectors, and creating new economic opportunities.

BDO in Ukraine

Since the beginning of the full-scale invasion, the mining and oil refining industries in Ukraine have suffered significant negative impacts, primarily due to the occupation of territories where a significant portion of resources were previously extracted, as well as the suspension of foreign investment flows due to the unfavorable economic situation.

In the long-term perspective, we refrain from making confident forecasts due to geopolitics, as it has the potential to fundamentally alter the situation. However, in the short-term perspective, we believe that the main factors influencing the mining and oil refining industries in Ukraine will be:

• Gradual increase in oil prices both domestically and internationally
• Active reduction in natural gas prices after seasonal growth during the heating season.

Reliable recovery after the war will require significant investment and financial support from both the government and international investors. The most challenging task will be the restoration of infrastructure, as its success depends on the efficiency of work and the speed of rebuilding key facilities. The implementation of modern technologies and innovations to increase efficiency and competitiveness, as well as government-led reforms, may become indispensable.